Mexican peso crisis / tequila crisis

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pages: 411 words: 114,717

Breakout Nations: In Pursuit of the Next Economic Miracles by Ruchir Sharma

3D printing, affirmative action, Albert Einstein, American energy revolution, anti-communist, Asian financial crisis, banking crisis, Berlin Wall, BRICs, British Empire, business climate, business cycle, business process, business process outsourcing, call centre, capital controls, Carmen Reinhart, central bank independence, centre right, cloud computing, collective bargaining, colonial rule, corporate governance, creative destruction, crony capitalism, deindustrialization, demographic dividend, Deng Xiaoping, eurozone crisis, Gini coefficient, global supply chain, housing crisis, income inequality, indoor plumbing, inflation targeting, informal economy, Kenneth Rogoff, knowledge economy, labor-force participation, land reform, M-Pesa, Mahatma Gandhi, Marc Andreessen, market bubble, mass immigration, megacity, Mexican peso crisis / tequila crisis, Nelson Mandela, new economy, oil shale / tar sands, oil shock, open economy, Peter Thiel, planetary scale, quantitative easing, reserve currency, Robert Gordon, Shenzhen was a fishing village, Silicon Valley, software is eating the world, sovereign wealth fund, The Great Moderation, Thomas L Friedman, trade liberalization, Watson beat the top human players on Jeopardy!, working-age population, zero-sum game

This was the same high-growth and low-inflation “Goldilocks economy” that America enjoyed in the 1990s, only with much faster growth and expanded to a planetary scale, including much of the West. It was a chorus of all nations, singing a story of stable high-speed success, and many observers watched with undiscriminating optimism. The emerging nations were all Chinas now, or so it seemed. This illusion, which in large part persists to this day, is fed by the fashionable explanation for the boom—that emerging markets succeeded because they had learned the lessons of the Mexican peso crisis, the Russian crisis, and the Asian crisis in the 1990s, all of which began when piles of foreign debt became too big to pay. But starting in the late 1990s, these formerly irresponsible debtor nations cleaned up the red ink and became creditors, even as former creditor nations, led by the United States, began sinking into debt. Thus the emerging nations were poised, as never before, to take advantage of the global flows of people, money, and goods that had been unleashed by the fall of Communism in 1990.

., 129 Kenya, 191, 205, 209 Keynes, John Maynard, 109 KGB, 86 Khodorkovsky, Mikhail, 87 Kia, 161, 162–63 kidnappings, 78–79, 190–91 Kim Jong Il, 170 Kinshasa, 205 Kirchner, Cristina, 89 Kirchner, Nestor, 89 Klaus, Vaclav, 108 Koç family, 125 “Korea Discount,” 167–69 “Korean Wave,” 122, 167 KOSPI index, 70, 153, 155, 156, 164, 165 K-pop, 122, 154, 167 Kuala Lumpur, 147, 148, 151 Kumar, Nitish, 50–51 Kuwait, 187–88, 214, 216, 218, 219 Kuznets curve, 76 labor market, 7, 17, 21–23, 27, 32, 38, 47, 55, 64, 65, 76, 77, 102, 103, 104, 164, 169–70, 174–75, 179, 180–81, 199, 203–4, 246–47 Lada, 86 Lafarge, 213 Lagos, 211, 212, 213 landlines, 207 land-use laws, 25, 168 Laos, 188 laptop computers, 158, 164 large numbers, law of, 7 Last Train Home, The, 22–23 Latin America, viii, 40–41, 42, 73–75, 81, 89, 246 see also specific countries Latvia, 101 Lavoisier, Antoine, 235–36 law, rule of, x, 50–51, 89, 96, 127, 181–82 lead, 19 Leblon neighborhood, 61 Lee Kwan Yew, 118, 148, 193 Lehman Brothers, 164 Le Thanh Hai, 203 Lewis, Arthur, 21 “Lewis turning point,” 21 LG, 158, 163 “Liberation Tigers” of Tamil Eelam, 192–93, 197 Liberty, 178 Libya, 127, 216 Limpopo River, 171 Linux, 238 liquidity, 9, 228–30 liquor stores, 126 literacy rate, 52 Lithuania, 101, 109 Lixin Fan, 22–23 loans, personal, 12, 24, 116, 125, 150 long-run forecasting, 1–14 L’Oréal, 31 Louis Vuitton, 31 Lugano, 40 Lula da Silva, Inácio, 59, 61, 66, 70, 210, 226, 248 luxury goods, vii–viii, 12, 25, 31, 236 Macao, 201 macroeconomics, 7–8, 13, 66, 67, 145–46, 188 “macromania,” 7–8, 188 Made in America, Again, 246–47 “made in” label, 155, 246–47 Madhya Pradesh, 52 maglev (magnetic levitation) trains, 15–16, 231 Magnit, 90–91 Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 41–42 Malaysia, 146–52 in Asian financial crisis, 18, 131–32, 146–47, 149–50 banking in, 146, 149–50, 151, 252 currency of (ringgit), 131, 146–47, 149 economic planning in, 150–52, 161 economy of, 18, 118, 150–52, 161, 235 electronics industry of, 147–48 as emerging market, 10, 45, 118, 149, 161, 235 foreign investment in, 146–50, 151 foreign trade of, 6, 144, 147, 157 GDP of, 145, 147, 149 government of, 146, 148–52 growth rate of, 9, 147–48, 149, 244 income levels of, 138, 148 manufacturing sector in, 147–48, 150 political situation in, 146–49 Singapore compared with, 118 stock market of, 131, 235 Thailand compared with, 144, 145, 147 wealth of, 148 Mali, 208 Malta, 30, 106 Malthus, Thomas, 225, 231–32 Mandela, Nelson, 171, 172, 176 Manila, 130, 138, 139, 140, 141 Manuel, Trevor, 176 manufacturing sector, 17–18, 22–23, 28, 43, 54, 75, 80, 88–89, 90, 110, 124, 132, 147–48, 150, 155, 157, 158–59, 160, 161–66, 168, 170, 180, 221, 230, 235, 246–47, 265 Maoism, 37, 47 Mao Zedong, 21, 27, 29 Marcos, Ferdinand, 138, 139, 210 markets: black, 13–14, 96, 126 capital, 69, 70–71; see also capital flows commodity, 12, 13–14, 223–39 currency, 4, 9, 13, 28 domestic, 36, 43, 183 emerging, vii–x, 2–11, 37–38, 47, 64, 94, 185–91, 198–99, 242–49, 254–55, 259–62 free, x, 8–9, 96, 104 frontier, 89, 185–91, 213, 261–62 housing, 5–6, 16, 18, 24–25, 28–29, 31, 32, 61, 92, 103–4 labor, 7, 17, 21–23, 27, 32, 38, 47, 55, 64, 65, 76, 77, 102, 103, 104, 164, 169–70, 174–75, 179, 180–81, 199, 203–4, 246–47 see also stock markets Mato Grosso, 232 Mayer-Serra, Carlos Elizondo, 78 MBAs, 225 Mbeki, Thabo, 176, 206 Medellín drug cartel, 79 Medvedev, Dmitry, 95–96 Mercedes-Benz, 86, 144 Merkel, Angela, 108 Mexican peso crisis, 4, 9 Mexico, 73–82 antitrust laws in, 81–82 banking in, 81, 82 billionaires in, 45, 47, 71, 78–80 Brazil compared with, 71, 75 China compared with, 80, 82 consumer prices in, 75–76 corruption in, 76–77 currency of (peso), 4, 9, 73, 80, 131 drug cartels in, 79–80 economy of, 4, 12, 28, 73–82, 178, 183 emigration from, 79, 82 foreign exports of, 6, 75, 80, 158 GDP of, 76, 77, 81 government of, 76–78 growth rate of, 73–82, 244 income levels of, 8, 73–75, 76, 113 labor unions in, 76, 77 national debt of, 76, 80–81 nationalization in, 77–78 oil industry of, 75, 77–78, 82 oligopolies in, 73, 75, 76–82, 178 parliament of, 76–77 political situation in, 76–78, 82 population of, 73 stock market of, 73, 75, 76, 81 taxation in, 76 U.S. compared with, 75, 79, 80 Mexico City, 75 micromanagement, 151 middle class, 10, 19–20, 33, 42–43, 52–56, 182, 211, 236 Middle East, 38, 65, 68, 113, 116, 122, 123, 125, 166, 170, 189, 195, 214–21, 234, 246 middle-income barrier, 19–20, 144–45 middle-income deceleration, 20 Miller, Arthur, 223 minimum wage, 29, 63, 126, 137 mining industry, 44, 93, 154, 175, 176, 178–80 Miracle Year (2003), 3–6 misery index, 248–49 Mittal, Sunil Bharti, 204–5, 206, 209 mobile phones, 53, 86, 204–5, 207–8, 212, 237 Mohammed, Mahathir, 146–47, 148, 151 Moi, Daniel arap, 205 monetization, 225 Money Game, The (Smith), 234 Mongolia, 191 monopolies, 13, 73, 75–76, 178–79 Monroe, Marilyn, 129 Monte Carlo, 94 “morphic resonance,” 185 mortgage-backed securities, 5 mortgages, 5, 92, 105–6 Moscow, 12, 83, 84, 90, 91, 96, 136, 137, 232 mosques, 111 Mou Qizhong, 46 Mozambique, 184, 194–95, 198, 206 M-Pesa, 208 MTN, 212–13 Mubarak, Gamal, 218 Mubarak, Hosni, 92, 127, 218 Mugabe, Robert, 176, 181 Multimedia Supercorridor, 151 multinational corporations, 53, 73, 75, 81, 151, 158–59, 160, 184, 230 Mumbai, 43, 44, 79, 214, 244 Murder 2, 167 Murphy’s law, 11 Muslim Brotherhood, 127 Mutual, 178 mutual funds, 178–79 Myanmar, 30 Myspace, 41 Naipaul, V.

At the low point in mid-1998, the combined stock market value of the key East Asian economies (Thailand, South Korea, Indonesia, Malaysia) was $250 billion, or less than the value of General Electric. Since then the East Asian stock markets have surged tenfold in dollar terms. In retrospect, 1998 offered investors a rare opportunity to buy into those markets. In all of the regional financial crises going back to the Mexican Tequila Crisis of 1994, the country where the crisis started saw its stock market drop 85 percent on average (for example, Thailand in 1997–1998), while all of the markets in the region fell by an average of 65 percent. Europe is at a similar point today. The Eurozone crisis started in Greece, where the market is up slightly from a maximum decline of 90 percent, and the rest of peripheral Europe—Portugal, Italy, Ireland, and Spain—hit maximum declines that averaged 70 percent.


Global Governance and Financial Crises by Meghnad Desai, Yahia Said

Asian financial crisis, bank run, banking crisis, Bretton Woods, business cycle, capital controls, central bank independence, corporate governance, creative destruction, credit crunch, crony capitalism, currency peg, deglobalization, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, floating exchange rates, frictionless, frictionless market, German hyperinflation, information asymmetry, knowledge economy, liberal capitalism, liberal world order, Long Term Capital Management, market bubble, Mexican peso crisis / tequila crisis, moral hazard, Nick Leeson, oil shock, open economy, price mechanism, price stability, Real Time Gross Settlement, rent-seeking, short selling, special drawing rights, structural adjustment programs, Tobin tax, transaction costs, Washington Consensus

The need is to invest resources into building models based on the best available theory, calibrate them and then test which of the alternative provides a plausible explanation. It is not an easy task. It will require combining finance theory, econometrics and political economy. But it needs to be done. Notes 1 For the affairs at LTCM see Lowenstein, R. (2000) ‘When genius failed’, The Rise and Fall of Long Term Capital Management, Random House, New York. The Mexican peso crisis, which happened in December 1994, was regional and did not grow into a global crisis as the Asian one did. I am excluding it therefore. There were other national crises in Russia, Turkey, Argentina and Brazil. 2 For the 1998 debate on financial architecture see Eatwell and Taylor (1998). They propose a World Financial Authority as a regulator rather than a lender of last resort. 3 For excess volatility see Soros, George (2000) and for overvaluation and persistent bubble Shiller, R. (2001) Irrational Exuberance, Princeton University Press, Princeton, NJ. 4 Fama, E. (1970) Efficient capital markets: a review of theory and empirical work, Journal of Finance, 25: 383–417.

The social costs of the public policy responses have been very considerable, usually involving bail-outs of much of the financial sector and the corporate sector more generally. There have also been considerable misgivings in East Asia about how differently the IMF responded to the East Asian crises compared to the earlier Mexican crisis. It is widely believed that the IMF was far more generous in helping Mexico due to US interest in ensuring that the 1994–95 tequila crisis not be seen as an adverse consequence of Mexico’s joining the North American Free Trade Agreement (NAFTA). In contrast, East Asians saw the IMF as far less generous and far more demanding with them despite having been previously held up as miracle economy models for emulation by others. The disappointment has been compounded by the fact that all three countries had long seen themselves as US (and Western) allies, and hence, expected favoured treatment instead.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, buy and hold, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus, zero-sum game

For now, there was relative peace in international monetary matters, yet this peace rested on nothing more substantial than faith in the dollar as a store of value based on a growing U.S. economy and stable monetary policy by the Fed. These conditions largely prevailed through the 1990s and into the early twenty-first century, notwithstanding two mild recessions along the way. The currency crises that did arise were nondollar crises, such as the sterling crisis of 1992, the Mexican peso crisis of 1994 and the Asia-Russia financial crisis of 1997–1998. None of these crises threatened the dollar—in fact, the dollar was typically a safe haven when they arose. It seemed as though it would take either a collapse in growth or the rise of a competing economic power—or both—to threaten the supremacy of the dollar. When these factors finally did converge, in 2010, the result would be the international monetary equivalent of a tsunami.

Global Skirmishes Apart from the big three theaters in the currency war—the Pacific (dollar-yuan), the Atlantic (euro-dollar) and the Eurasian (euro-yuan) —there are numerous other fronts, sideshows and skirmishes going on around the world. The most prominent of these peripheral actions in the currency war is Brazil. As late as 1994, Brazil maintained a peg of its currency, the real, to the U.S. dollar. However, the global contagion resulting from the Mexican “Tequila Crisis” of December 1994 put pressure on the real and forced Brazil to defend its currency. The result was the Real Plan, by which Brazil engaged in a series of managed devaluations of the real against the dollar. The real was devalued about 30 percent from 1995 to 1997. After this success in managing the dollar value of the real to a more sustainable level, Brazil once again became the victim of contagion.


pages: 354 words: 105,322

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis by James Rickards

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Swan, blockchain, Bonfire of the Vanities, Bretton Woods, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, Paul Samuelson, Peace of Westphalia, Pierre-Simon Laplace, plutocrats, Plutocrats, prediction markets, price anchoring, price stability, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk-adjusted returns, Ronald Reagan, Silicon Valley, sovereign wealth fund, special drawing rights, stocks for the long run, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, Westphalian system

The ice-nine process had been reversed. With floating exchange rates, an ice age ended, glaciers melted, and the world was awash in a sea of liquidity. This was the financial equivalent of global warming. There was no problem that could not be solved with low rates, easy money, and more credit. Easy money did not end financial crises; far from it. There was a Latin American debt crisis beginning in 1982, a Mexican peso crisis in 1994, an Asian-Russian financial crisis in 1998, and the 2007–9 global financial crisis. In addition, there were occasional market panics including October 19, 1987, when the Dow Jones Industrial Average fell 22 percent in one day. Other market crashes included the burst dot-com bubble in 2000, and the market break after the 9/11 attacks. What was new was that none of these crises involved widespread bank defaults or closures.

Yet Washington was serving up more of the same—bigger banks, more derivatives, more interconnectedness. OFR was taking its risk management cues from the Fed. It was the blind leading the blind. In the past thirty years, global capital markets reached critical mass and headed toward complete collapse four times. The first was October 19, 1987, Black Monday, when U.S. stock markets fell over 20 percent in one day. The second was December 20, 1994, the Tequila Crisis, when Mexico devalued the peso 15 percent in one day. The third was August 17, 1998, when Russia devalued the ruble and defaulted on its debt, leading to the LTCM collapse. The fourth was June 20, 2007, when two Bear Stearns hedge funds collapsed after a failed rescue attempt leading to the Lehman crisis the following year. Capital markets are in what physicists call a supercritical state, which means one critical event can trigger a chain reaction and catastrophic end result.


pages: 566 words: 163,322

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma

Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, Commodity Super-Cycle, corporate governance, creative destruction, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, hiring and firing, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Jeff Bezos, job automation, John Markoff, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, lateral thinking, liberal capitalism, Malacca Straits, Mark Zuckerberg, market bubble, mass immigration, megacity, Mexican peso crisis / tequila crisis, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, pattern recognition, Paul Samuelson, Peter Thiel, pets.com, plutocrats, Plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, The Future of Employment, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, working-age population

Yet time and again in recent decades, the world has been gripped by currency contagions, in which investors start pulling money out of one troubled country, triggering a pullout from countries in the same region or income class even though those nations can pay their bills. In a way, the serial crises that have rocked the emerging world since the 1970s are one rolling crisis built on the recurring fear that poor nations won’t have the money to pay their bills. The Mexican peso crisis of ’94 begat the Thai crisis of ’97 begat the Argentine crisis of 2002 and many others, trampling more than a few innocent-victim nations along the way. At the first signs that one emerging-world currency is faltering—as the Thai baht did in 1997—investors often flee from emerging markets in general. They do not pause to distinguish between countries that face a serious current account deficit problem and those that do not.

Instead of anticipating the crisis and making a killing, foreigners sold out at the bottom and lost a fortune. Capital flight begins with locals, I suspect, because they have better access to intelligence about local conditions. They can pick up informal signs—struggling businesses, looming bankruptcies—long before these trends show up in the official numbers that most big foreign institutions rely on. Balance of payments data show that during Mexico’s “tequila crisis” in December 1994, when the currency peg against the dollar came unstuck, locals started to switch out of pesos and into dollars more than eighteen months before the sudden devaluation. Years later Russians began to pull money out of their country more than two years before the ruble collapsed in August 1998. Savvy locals are also often the first to return. In seven of the twelve major emerging-world currency crises, locals started bringing money back home earlier than foreigners and acted in time to catch the currency on its way up.

I didn’t listen to the chorus whispering, “Kiss of debt, kiss of debt . . .” Over the last three decades, the world has been subjected to increasingly frequent financial crises, each one setting off a hunt for the clearest warning sign of when the financial mine is about to blow again. Every new crisis seemed to produce a new explanation for crises in general. The postmortems after Mexico’s “tequila crisis” of the mid-1990s focused on the dangers of short-term debt, because short-term bonds had started the meltdown that time. After the Asian financial crisis of 1997–98, it was all about the danger of borrowing heavily from foreigners, because foreigners had suddenly cut off lending to Thailand and Malaysia when their problems became clear. These varying explanations resulted in much confusion and contributed to the general failure of most big financial institutions to see the credit crisis looming before 2008.


pages: 289 words: 113,211

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation by Richard Bookstaber

"Robert Solow", affirmative action, Albert Einstein, asset allocation, backtesting, beat the dealer, Black Swan, Black-Scholes formula, Bonfire of the Vanities, butterfly effect, commoditize, commodity trading advisor, computer age, computerized trading, disintermediation, diversification, double entry bookkeeping, Edward Lorenz: Chaos theory, Edward Thorp, family office, financial innovation, fixed income, frictionless, frictionless market, George Akerlof, implied volatility, index arbitrage, intangible asset, Jeff Bezos, John Meriwether, London Interbank Offered Rate, Long Term Capital Management, loose coupling, margin call, market bubble, market design, merger arbitrage, Mexican peso crisis / tequila crisis, moral hazard, Myron Scholes, new economy, Nick Leeson, oil shock, Paul Samuelson, Pierre-Simon Laplace, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk tolerance, risk/return, Robert Shiller, Robert Shiller, rolodex, Saturday Night Live, selection bias, shareholder value, short selling, Silicon Valley, statistical arbitrage, The Market for Lemons, time value of money, too big to fail, transaction costs, tulip mania, uranium enrichment, William Langewiesche, yield curve, zero-coupon bond, zero-sum game

First, the Japanese stock market bubble, in which the Nikkei index tripled in value from 1986 through early 1990 and then nearly halved in value during the next nine months. The second was our own Internet bubble that witnessed the NASDAQ rise fourfold in a little more than a year and then decline by a similar amount the following year, ultimately cascading some 75 percent. This same period was peppered with three major currency disasters: the European Monetary System currency crisis in 1992; the Mexican peso crisis that engulfed Latin America in 1994; and the Asia crisis, which spread from Thailand and Indonesia to Korea in 1997, and then broke out of the region to strike Russia and Brazil. The Asia crisis triggered losses that wiped out the majority of the market value that the Asian “Tiger” economies had amassed in the prior decade of booming growth. LTCM seemed just as cataclysmic at the time, but it centered on a single $3 billion hedge fund in 1998, albeit one that had more than $100 billion at risk.

Senate hearings, 129–130 Epstein, Sheldon, 46–47, 49 index-amortizing swap, 116 Equity trading profitability, 71–75 proprietary reliance, 73–74 European Monetary System currency crisis (1992), 3 Event risk, 248–249 Factor exposures, 202 Fair value basis, 29 Federal Deposit Insurance Corporation (FDIC), 113 Federal Reserve policy shifts, 85 rate hike, impact, 53 Feduniak, Bob, 42, 52 Feuerstein, Donald, 196 Financial instability, aspects, 3–4 Financial markets, 224–225 Financial risk, 256–257 Fisher, Andy, 59, 80 Fixed income focus, 251–252 Fixed income research (FIR), 8–9, 43–44 Flood, Gene, 190 Franklin, Mark, 97 Free-floating anxiety, 235 Frictionless markets, 209 FrontPoint Partners, 204, 205 FTSE Index, 117 Fundamental data, 166 Furu, example, 233–235 Futures market, 17–19 Futures shock (1635), 175–177 Galbraith, John Kenneth, 16 Gamma, problems, 24–25 General Electric (GE), 41–42 Generally accepted accounting principles (GAAP), 135 Geographic regions, classification, 246 Global Crossing, restatements/liability, 135 Godel, Kurt, 222–224, 227–228 Gold, Jeremy, 8–9 Goldman Sachs acquisition, 75 public offering, delay, 109 Goldstein, Ramy, 116–118 Gracie family, 258–259 Gracie, Gastao, 258 Greenhill, Bob, 73 Greenmail, taxation, 13–14 Gross Domestic Product (GDP), 3–4 Growth bias, 202 Grubman, Jack, 128–130, 134 MCI/BT involvement, 69–71 nursery school admissions, 131–132 Gutfreund, John, 62–63, 105, 195–197 resignation, 199 Haghani, Victor, 102–104, 110, 112 Hall, Andy, 63–67 Hawkins, Greg, 51 Hedgefundedness, 243–244 Hedge funds, 165, 207, 214–215, 243 classification, problem, 245 classification, 245–246 control, 252–253 defining, 245 economic service, 219 existence, question, 244 regulation, 247–250 Heisenberg, Werner, 223–228 Hilibrand, Larry, 79, 110, 113 Human error, 149 272 bindex.qxd 7/13/07 2:44 PM Page 273 INDEX Kaplan, Joel, 44–45 Kaplanis, Costas, 63, 79 Kidder, Peabody, 39–42 Knowledge, limits, 221–230 Krasker, Bill, 86 Liquidity basics, 213–220 complexity, relationship, 145 demand, 26, 191 hedge fund classification, 246 history, 217–218 impact, 212–213 needs, 183 providers, 213–215 role, 215–220 squeeze, prospects, 105 suppliers, 22, 192–193 supply, price elasticity, 94–95 transparency, 226 Liquidity crisis cycle, 93–94 prevention, 94–95 providing, hedge funds (impact), 214–215 Long-range forecasting, 228 London Exchange, Rothschild visit, 90 London Interbank Offered Rate (LIBOR) government rates, parity, 57 higher-yielding LIBOR bond, 57 LIBOR-denominated debt, 56 Long-dated call options, 57 Long-Distance Discount Service (LDDS), acquisitions, 70 Long/short equity hedge funds, 200–205 Long-Term Capital Management (LTCM) capital reserves, assumption, 106–108 collapse, 93 decision point, 110 disaster, 57, 60, 92–93, 100, 145 hedge fund debacle/crisis, 1–3 leverage cycle, 97 liquidity risk, 107–108 losses, 108–111 management, initiation, 195–200 market price positions, feedback, 112 market risks, modeling/monitoring, 111–112 problems, public knowledge, 104–105 repurchase agreement, problem, 104 risk arbitrage position, 107 risk burden, 108 Long-term rates, short-term rates (interaction), 47 Loops, usage/impact, 45 Loosely coupled system, 157 Lorenz, Edward, 227–229 deterministic systems, 229–230 Langsam, Joe, 232, 236–237 Laplace, Pierre-Simon, 223, 225 Lead-lag strategy, 193–194 Leeson, Nick (impact), 38–39 Leibowitz, Marty, 8, 51, 53 Leland, Hayne, 10 Leverage, 244 amount, reduction, 260 crisis, occurrence, 111–113 regulations, imposition, 248 Levin, Carl, 130 Lewis, Michael, 52 Liquidation ability, 93 Mack, John, 28, 29, 35, 37 trader emulation, 35 Macro data, usage, 166–167 Macro strategies, 202 Maeda, Mitsuyo, 258 Margin-induced sale, 94 Market aberrations, opportunities, 122 breakdown, reaction, 146 crises, worsening (aspects), 3–4 cycle, basis, 169 decline, respite, 23–24 exponential growth, 17 Illiquidity, cost, 217–218 Index-amortizing swap, 46–48 Information flow, process, 210 implications, derivation, 170–171 overload, 220–230 Information-based trading, 166 Information Technology (IT), support function, 185–186 Initial public offerings (IPOs), 72 creation, 173–174 issuance, amount, 178–179 Innovation, positive effects, 255–256 INSEAD, 66 Intangibles, 137–138 Interactive complexity, 154–157 Interest only (IO), 55 Interest rate, 84–85, 87 International Monetary Fund (IMF) package, 103 Internet bubble, 179–181 businesses, virtual nature, 172 stocks, run-up (1998), 178 Interrelated markets, complexity (by-product), 143 Intraday price movement, 183 Inventory service, 71 Investment buyers, scare, 22 coverage, 249–250 investor behavior, 203–204 strategy, 247 type, classification, 246 Investors, irrational behavior, 203–204 Irrational markets, impact, 180–181 Iverson, Keith, 48 Iverson, Ken Japan, liquidity, 39 Japanese swap spread strategy/profit, 100 Jenkinson, Robert Banks, 89–90 Jett, Joe, 39–41 Jiu Jitsu Academy, 258 Jones, Paul Tudor, 165 Junk bonds, 71 273 bindex.qxd 7/13/07 2:44 PM Page 274 INDEX Market (Continued) failures, safeguards, 239–240 illiquidity, portfolio insurance by-product, 14 innovation, 11–12 makers, problem, 191–192 regulation, 146–154 risk, paradox, 1 volatility, 5, 25 vulnerability, 224–225 Market bubbles, 168–174 Market-to-book ratio, 138 Marx, Karl, 250 Marxist backward market, exploitation, 250 Material adverse change clause, 65 Maughan, Deryck, 59, 73–77 MCI Communications British Telecom (BT), merger/trade, 63–64, 67, 128 conclusion, 74 EPS, decline, 70 renegotiation, willingness, 67–68 stock, decline, 64 Mean-reversion analysis, 190 Mechanical failure, 149 Mercury Asset Management, 196 Mergers and acquisitions (M&A) advice/underwriting, 33 Meriwether, John, 52, 100, 197 resignation, 199 Merrill Lynch, 42 Merton, Robert, 9, 207 Metallgesellschaft Refining and Marketing (MGRM), oil price risk (offloading), 37–38 Mexican Brady bond/Eurobond spread, 107 Mexican peso crisis (1994), 3 Miller, Heidi, 78–80, 140 Modigliani, Franco, 208–209 Money flows, 167 Morgan Stanley APL, usage, 44–45 Dean Witter, merger, 75 IT department, 43 portfolio insurance, 10–12 risk arbitrage department, 15 risk manager, 42 Morgan Stanley Asset Management (MSAM), 11 Morgan Stanley Investment Management (MSIM), 205 Mortgage-backed securities (MBSs), 54–56, 213 Mortgage market, 35, 54–55, 102 Mortgages, opportunities, 35 Mozer, Paul, 195–198 Munger, Charlie, 62, 99, 101, 197–198 Myojin, Sugar, 59, 63, 78–79 Natural catastrophe, 257 New York Stock Exchange (NYSE) specialists, impact, 20–21 stock sale, 13 Noncash exchanges, 40 Norman Conquest, 215 Norris, Floyd (editorial), 91–92 O’Brien, John, 10 One-off events, 249 Opportunistic strategies birth/death cycle, 252 history, 251 Optimal behavior, mathematical framework, 237–240 Options, stripping, 117 Option theory, 24 Orange County, bankruptcy, 38 Organizational dysfunction, 134–136 Pacioli, Luca, 136–137 Pairwise stock trades, 187 Palmedo, Peter, 17, 28–29 Paloma Partners Management Company, 42 Pandit, Vikram, 12 Parets, Andy, 63–69 Parkhurst, Charlie, 85 Partnership model, 37 Perfect market paradigm, 209–210 imperfections, 210–212 liquidity, degree, 212–213 Phibro, Salomon acquisition, 66 Physical processes, modeling, 229 Platt, Bob, 7–8 Portfolio insurance, 10–15 market crash, 22 Portfolio managers, loss (risk), 204–205 Position disclosure, problems, 225 transparency, increase (financial market regulator advocacy), 225 Preference shares, illiquidity, 115 Price convergence, 121–122 Primal risk, 235–237 knowledge, limits, 230–232 Primogeniture, 215–220 implications, 216–217 objective, impact, 216 Principal only (PO), 54–55 Principia Mathematica (Russell), 221–223 Procter & Gamble, losses, 38 Program trading, absence, 24–25 Protest bids, 195–196 Quants, 8–9, 82–84 Quantum Fund, 180–181 Quattrone, Frank, 72 Rational man approach, 231 Real assets, valuation, 137–138 Real-world risk, 237–238 Reed, John, 127 Relative strength index (RSI), 190 Relative value trades, 101–102 Rhoades, Loeb, 125 RISC workstations, 191 Risk control, 220 knowledge, absence, 231–232 management, 36 nature, variation, 249 reduction, 185 progress/refinement, impact, 4 tactical usage, 200 274 bindex.qxd 7/13/07 2:44 PM Page 275 INDEX Risk arbitrage, 15–16, 65, 71 Risk Architecture, 126 Risk-controlled relative value trading, 102–103 Risk-management structure, 238 Robertson, Julian, 165, 179–182 Rosenbluth, Jeff, 59, 83 Rosenfeld, Eric, 51, 79, 86 Rothschild, Nathan, 88–89 trading strategy, 90–93 Waterloo, relationship, 89–90 Rubinstein, Mark, 10 Russell, Bertrand, 221–223 Russia default, 103–104 Russian short-term bonds, 103 Salomon Brothers arbitrage units, 73–74, 80–82 closure, 88–89 tracking error, problems, 86–89 competition, 60–61 fixed income trading floor, 82 Japanese unit, 56–62 July Fourth massacre, 86–89 mortgage position, loss, 55–56 organization, trader involvement, 73 risk arbitrage group, mortgage position, 80–81 Travelers purchase, 77 Salomon North, 81, 100, 199 Salomon Smith Barney convergence trades, 120–124 proprietary trading, reduction, 92 risk management committee, 98–101 risk measuring/monitoring, 126 Travelers, interaction, 125 U.S. fixed income arbitrage group, 91–93 U.S.


Britannia Unchained: Global Lessons for Growth and Prosperity by Kwasi Kwarteng, Priti Patel, Dominic Raab, Chris Skidmore, Elizabeth Truss

Airbnb, banking crisis, Carmen Reinhart, central bank independence, clockwatching, creative destruction, Credit Default Swap, demographic dividend, Edward Glaeser, eurozone crisis, fear of failure, glass ceiling, informal economy, James Dyson, Kenneth Rogoff, knowledge economy, long peace, margin call, Mark Zuckerberg, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, Neil Kinnock, new economy, North Sea oil, oil shock, open economy, paypal mafia, pension reform, price stability, profit motive, Ronald Reagan, Sand Hill Road, Silicon Valley, Stanford marshmallow experiment, Steve Jobs, Walter Mischel, wealth creators, Winter of Discontent, working-age population, Yom Kippur War

Debt continued to grow far faster than Canada could pay it down. Over the course of Mulroney’s term from 1984 to 1993 debt grew from 46.9 per cent to 67 per cent of GDP.10 At one point, 36 per cent of the taxes of the citizens in Ottawa was going towards paying off the national debt.11 Even worse, the higher interest rates were slowing the economy, making it still harder to pay off the debt. The situation was clearly getting out of control. The 1994 Mexican Peso Crisis had shown how quickly international investors could lose faith in a country. Unless Canada acted soon, it too faced the danger of the vicious cycle of falling investor confidence, increased debt and economic stagnation. By 1995 Canada’s federal debt was 68.4 per cent of GDP. On top of this, it also faced provincial debt of 27.6 per cent of GDP.12 As a whole, the Canadians’ debt had passed an ominous 90 per cent of GDP.


pages: 585 words: 151,239

Capitalism in America: A History by Adrian Wooldridge, Alan Greenspan

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, agricultural Revolution, air freight, Airbnb, airline deregulation, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bonfire of the Vanities, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, corporate governance, corporate raider, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, fixed income, full employment, George Gilder, germ theory of disease, global supply chain, hiring and firing, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, Louis Pasteur, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, means of production, Menlo Park, Mexican peso crisis / tequila crisis, minimum wage unemployment, mortgage debt, Myron Scholes, Network effects, new economy, New Urbanism, Northern Rock, oil rush, oil shale / tar sands, oil shock, Peter Thiel, plutocrats, Plutocrats, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Ronald Reagan, Sand Hill Road, savings glut, secular stagnation, Silicon Valley, Silicon Valley startup, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, supply-chain management, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, total factor productivity, trade route, transcontinental railway, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, War on Poverty, washing machines reduced drudgery, Washington Consensus, white flight, wikimedia commons, William Shockley: the traitorous eight, women in the workforce, Works Progress Administration, Yom Kippur War, young professional

Women’s rising employment was also made possible by rises in the productivity of other areas of the economy: it reflected the fact that it was easier to clean house or go shopping. “WE ARE FORTUNATE TO BE ALIVE AT THIS MOMENT IN HISTORY” There were plenty of clouds on the horizon as the twentieth century drew to a close. The financial system was much more fragile than it appeared. Globalization was much more crisis prone: the Mexican peso crisis of 1994 was followed by the Asian crisis of 1997. Some of the positives of the era were balanced by negatives. The advance of educated women coincided with a retreat for blue-collar men. In 2000, only 67 percent of males fifty-five to sixty-four years of age were in the labor force, compared with 87 percent in 1950. The rise of Silicon towns such as Palo Alto and Seattle coincided with the decline of Rust Belt towns such as Youngstown, Ohio.

., 148–49 logistics, 292–93 London Underground, 94 Long, Huey, 204, 245–46 Longworth, Alice Roosevelt, 182 Louisiana Purchase, 5, 35, 40, 42, 66–67 Louisiana State University, 246 Lowell, Francis Cabot, 36, 71 Lubell, Samuel, 248 Lynd, Robert and Helen, 11–12, 197 McCallum, Daniel, 137–38 McCormick, Cyrus, 15, 46–47, 72–73, 118 McDonald’s, 293, 390, 394, 428, 443 McDougall, Walter, 45 Macfarlane, Alan, 5–6 McGowan, William, 341 McKenzie, Frederick Arthur, 311 McKinley, William, 152, 159, 168, 181, 427–28 McKinsey, James, 264 McKinsey & Company, 317–18 McLean, Malcolm, 292–93 McNamara, Robert, 34, 212 McPherson, James, 41 Macy, Rowland Hussey, 3, 24, 140, 439 Maddison, Angus, 6 Madison, James, 65, 67–68, 157 Magna Carta, 69 mail-order catalogues, 140–42 Malthus, Thomas, 44, 300 management buyouts (MBOs), 341 management consultants, 264 management methods, 137–38, 209–12, 317–21 management science, 290–93 managerial capitalism, 287–90, 338 Mann, Horace, 73 manufacturing, 63, 65, 80, 94, 280, 280–81, 323, 359–60, 371 Marconi, Guglielmo, 203 Marden, Orison Swett, 165 Margo, Robert, 295 Markowitz, Harry, 383 Marshall, John, 66 Marshall Plan, 278–79 Martin, William McChesney, 304 Martineau, Harriet, 45 Marx, Karl, 9, 361 Mason, George, 64 Mason, John Landis, 120 Mason jar, 120 Massachusetts Bank, 32 Massachusetts Bay Company, 8, 134 Massachusetts State Board of Education, 73 mass production, 15–16, 72, 146–47, 194–95, 271–72, 314 Meacham, Jon, 66 Means, Gardiner, 206–7 Meckling, William, 337 Medicaid, 303–4, 404, 405 Medicare, 303–4, 372, 404–8, 442–43 Mellon, Andrew, 190, 237–38, 259 Meltzer, Allan, 242 Melville, Herman, 393 Mencken, H. L., 153, 189, 190, 195–96, 251 merger wave of 1895 to 1905, 142–45 Merton, Robert, 383 Metro-Goldwyn-Mayer, 264 Mexican-American War, 5, 266 Mexican peso crisis of 1994, 366 Mexico, trade, 344, 346–47, 370, 370–71 Meyer, Eugene, 242 Microsoft, 323, 333, 354, 355, 360, 390–91 military-industrial complex, 283, 285, 349–50 Milken, Michael, 334, 338, 341–42 minimum wage, 163, 194, 244, 302, 424 Minneapolis Grain Exchange, 120 Mississippi River, 36, 52 MIT (Massachusetts Institute of Technology), 283, 284 Mitchell, George, 11, 357–59 Mitchell, Wesley Clair, 237 Moley, Raymond, 240–41, 260 Mondale, Walter, 326 monopolies, 109–10, 132 Monroe, James, 35, 67, 248 Montesquieu, 33 Moore, Gordon, 351, 353 Moore’s law, 19, 351 Moretti, Enrico, 393 Morgan, John Pierpont “J.


pages: 318 words: 85,824

A Brief History of Neoliberalism by David Harvey

affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, business cycle, capital controls, centre right, collective bargaining, creative destruction, crony capitalism, debt deflation, declining real wages, deglobalization, deindustrialization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, financial intermediation, financial repression, full employment, George Gilder, Gini coefficient, global reserve currency, illegal immigration, income inequality, informal economy, labour market flexibility, land tenure, late capitalism, Long Term Capital Management, low-wage service sector, manufacturing employment, market fundamentalism, mass immigration, means of production, Mexican peso crisis / tequila crisis, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, Pearl River Delta, phenotype, Ponzi scheme, price mechanism, race to the bottom, rent-seeking, reserve currency, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the built environment, The Chicago School, transaction costs, union organizing, urban renewal, urban sprawl, Washington Consensus, Winter of Discontent

The preparedness to intervene in currency markets by agreements such as the Plaza Accord of 1985, which artificially lowered the dollar against the Japanese yen, followed shortly thereafter by the Reverse Plaza Accord, which sought to rescue Japan from its depressed state in the 1990s, were instances of orchestrated interventions attempting to stabilize global financial markets.6 Financial crises were both endemic and contagious. The debt crisis of the 1980s was not limited to Mexico but had global manifestations (see Figure 4.2).7 And in the 1990s there were two sets of interrelated financial crises that yielded a negative trace of uneven neoliberalization. The ‘tequila crisis’ that hit Mexico in 1995, for example, spread almost immediately, with devastating effects on Brazil and Argentina. But its reverberations were also felt to some degree in Chile, the Philippines, Thailand, and Poland. Why, exactly, this particular pattern of contagion occurred is hard to explain because speculative movements and expectations in financial markets do not necessarily rely on hard facts.

Resistance to the ejido reform was, however, widespread, and several peasant groups supported the Zapatista rebellion that broke out in Chiapas in 1994.19 Figure 4.3 Employment in the major maquila sectors in Mexico in 2000 Source: Dicken, Global Shift. Having signed on to what became known as the Brady Plan for partial debt forgiveness in 1989, Mexico had to swallow, mainly voluntarily as it turned out, the IMF’s poison pill of deeper neoliberalization. The result was the ‘tequila crisis’ of 1995, sparked, as had happened in 1982, by the US Federal Reserve raising interest rates. This put speculative pressure on the peso, which was devalued. The trouble was that Mexico had earlier taken to issuing dollar-denominated debt (called tesobonos) to encourage foreign investment, and after the devaluation could not mobilize enough dollars to pay them off. The US Congress refused to help, but Clinton exercised executive powers to put together a $47.5 billion rescue package.

Menem opened the country to foreign trade and capital flows, introduced greater flexibility into labour markets, privatized state-owned companies and social security, and pegged the peso to the dollar in order to bring inflation under control and provide security for foreign investors. Unemployment rose, putting a downward pressure on wages, while the elite used privatization to amass new fortunes. Money flooded into the country and it boomed from 1992 until the ‘tequila crisis’ spilled over from Mexico: Within weeks, the Argentine banking system lost 18 per cent of its deposits. The economy that had grown at an average annual rate of 8 per cent from the second half of 1990 to the second half of 1994 fell into a steep recession. Gross domestic product contracted by 7.6 per cent from the last quarter of 1994 to the first quarter of 1996… the government’s interest burden increased by more than 50 per cent from 1994 to 1996.


pages: 248 words: 57,419

The New Depression: The Breakdown of the Paper Money Economy by Richard Duncan

asset-backed security, bank run, banking crisis, banks create money, Ben Bernanke: helicopter money, Bretton Woods, business cycle, currency manipulation / currency intervention, debt deflation, deindustrialization, diversification, diversified portfolio, fiat currency, financial innovation, Flash crash, Fractional reserve banking, income inequality, inflation targeting, Joseph Schumpeter, laissez-faire capitalism, liquidity trap, market bubble, market fundamentalism, mass immigration, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, private sector deleveraging, quantitative easing, reserve currency, Ronald Reagan, savings glut, special drawing rights, The Great Moderation, too big to fail, trade liberalization

Prices drop suddenly because these distressed firms try to obtain cash by throwing inventories on the market dirt cheap. Factories are closed, the continuation of construction projects in progress is halted, workers are discharged.6 That was true not only in the Great Depression, but also in all the severe economic crises that have broken out during the decades following the collapse of Bretton Woods: the Latin American debt crisis of the early 1980s, the Japanese crisis that began in 1990, the Mexican peso crisis of 1994, the Asian crisis of 1997, and the Russian crisis of 1998. When the credit stopped expanding, the depression began. The current crisis in the United States is no different; when credit ceased to expand, the depression began. This depression, however, has not been allowed to run its course. During the Great Depression, unimpeded market forces purged the economy of the credit-driven excesses of the Roaring Twenties.


pages: 354 words: 92,470

Grave New World: The End of Globalization, the Return of History by Stephen D. King

9 dash line, Admiral Zheng, air freight, Albert Einstein, Asian financial crisis, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Sanders, bilateral investment treaty, bitcoin, blockchain, Bonfire of the Vanities, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collateralized debt obligation, colonial rule, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, debt deflation, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Snowden, eurozone crisis, facts on the ground, failed state, Fall of the Berlin Wall, falling living standards, floating exchange rates, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, global value chain, hydraulic fracturing, Hyman Minsky, imperial preference, income inequality, income per capita, incomplete markets, inflation targeting, information asymmetry, Internet of things, invisible hand, joint-stock company, Kickstarter, Long Term Capital Management, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, moral hazard, Nixon shock, offshore financial centre, oil shock, old age dependency ratio, paradox of thrift, Peace of Westphalia, plutocrats, Plutocrats, price stability, profit maximization, quantitative easing, race to the bottom, rent-seeking, reserve currency, reshoring, rising living standards, Ronald Reagan, Scramble for Africa, Second Machine Age, Skype, South China Sea, special drawing rights, technology bubble, The Great Moderation, The Market for Lemons, the market place, The Rise and Fall of American Growth, trade liberalization, trade route, Washington Consensus, WikiLeaks, Yom Kippur War, zero-sum game

LATIN AMERICA’S WOES Following the failure of its currency board at the end of the 1990s – an arrangement in which the peso was supposedly fixed against the US dollar for all time – and its subsequent return to Perónist policies under the Kirchners, Argentina appeared unwilling to subscribe fully to the Western model of faith in free markets and respect for property rights. Argentina, however, was an exception (alongside Venezuela, albeit from a rather different political perspective). Other large Latin American economies were keen to get a slice of the free-market action. Mexico signed up to the North American Free Trade Agreement on 1 January 1994. Although unfortunately timed – Mexico suffered its so-called ‘tequila crisis’ that year – its deal with the US and Canada underscored its enthusiasm for free-market values. Brazil, meanwhile, successfully managed to get a grip on inflation – thanks, in part, to the introduction of the so-called ‘Real plan’ in the mid-1990s. Standing at almost 3,000 per cent in 1990 and 2,000 per cent in 1994, Brazilian inflation badly needed to come down. And it did, dropping like a stone to a low of around 3 per cent in 1998.

To be taken seriously by international investors, policymakers in the emerging nations often chose to tie their currencies to US dollars, DM or, more recently, euros: by doing so, they hoped to demonstrate their commitment to monetary stability, even if their domestic financial arrangements appeared to be, at times, rather opaque. Unfortunately, this approach often didn’t work: the apparent guarantee of stability typically encouraged excessive capital inflows, domestic credit booms, unproductive investments and a subsequent rush for the exit. Think, for example, of the Mexican tequila crisis in the mid-1990s, the Asian crisis shortly thereafter, the 1998 Russian debt default, the collapse of Argentina’s currency board at the turn of the century and, most obviously, the global financial crisis. Given these experiences, an increasing number of emerging nations began to reject currency peg arrangements as a way of advertising their financial probity. Many shifted to floating currency arrangements, aware that attempts to fix foreign exchange rates in a world of free-flowing cross-border capital had only given rise to repeated booms and busts.

(i) Jolie, Angelina (i) Jordan (country) (i) Joyce, James (i) Juncker, Jean-Claude (i) Juncker Plan (i), (ii)n3 Junts pel Sí (i) Kaczińsky, Jarosław (i) Kaduna (i) Karbala, Battle of (i) Kazakhstan (i), (ii) Kennan, George (i) Keynes, John Maynard ‘animal spirits’ (i) bancor (i), (ii), (iii) Churchill and (i) demand management (i), (ii) IMF and (i) on fashion (i) on gold (i) ‘paradox of thrift’ (i) unemployment, inflation and (i) Kim, Dr Jim Yong (i) King, Mervyn (i)n12 Kirchner, Cristina Fernández de (i) Kirchner, Néstor (i) Kosmos (i) Korean War (i), (ii) Kunming (i) Kurds (i) Kuril Islands (i) Kuwait (i) Kyrgyzstan (i) Labour Party (UK) (i), (ii), (iii), (iv) Lagarde, Christine (i) Lagos (i) Latin America (i) balance of payments deficits (i) bringing inflation to heel (i) debt crises (i) immigrants enter US (i) income of (i) Law and Justice party (Poland) (i) Le Pen, Marine (i) League of Nations (i), (ii), (iii) Lebanon (i) Lee Kuan Yew (i) Lehman Brothers (i) Lenin, Vladimir Ilyich (i), (ii) Leopold II, King (Belgium) (i), (ii)n6 Leviathan (Thomas Hobbes) (i) Lewis, Arthur (i) Lewis Model (i) liberal democracy (i), (ii), (iii), (iv) Liberia (i) Libya (i), (ii) Lima (i) Lion King, The (Disney) (i) Lithuania (i) living standards Brazil (i) Italy (i) Mexico (i) New Zealand (i) Northern Europe and US (i) post-Second World War, industrialized countries (i) Soviet Union (i) under threat (i) US (i), (ii) various (i), (ii) West and parts of Asia (i) Western and Eastern Europe (i) Western Europe (i) Livingstone, David (i) Locke, John (i) London banker to the world (i) BBC Two and the power cut (i) clubs (i) financial centres (i) living standards (i) squalor to comfort in (i) London School of Economics (i) Long Term Capital Management (i) Long Term Credit Bank of Japan (i) Louvre (i) Love Thy Neighbour (i) Lucas, Robert (i) Luxembourg (i), (ii) Lydon, John (Johnny Rotten) (i) Maastricht Treaty (i), (ii) Macau (i), (ii) macroeconomics (i) Madagascar (i) Madrid (i) Magic Mountain, The (Thomas Mann) (i) malaria (i), (ii) Malaysia (i), (ii), (iii) Mali (i) Manchester Guardian (i) Manchuria (i), (ii) Manila (i) Mann, Katja (i) Mann, Thomas (i) Mansa Musa (i) Mao Zedong (i), (ii), (iii) Marshall, George (i), (ii) Marshall Plan (i), (ii), (iii), (iv) Marston Valley Brick Company (i), (ii) Marx, Karl (i), (ii), (iii), (iv), (v) Mary II, Queen (i) Massachusetts (i) Maxwell, Robert (i) May, Theresa (i) Mazzini, Giuseppe (i) McCarthy, Joe (i) McCloskey, Deirdre (i) Mecca (i) Mediterranean (i), (ii), (iii) Medvedev, Dmitry (i) Meiji Restoration (i), (ii) mercantilism (i) Mercia (i) Merkel, Angela (i), (ii) Mesopotamia (i) Mexico immigration into America (i) North American Free Trade Association (i), (ii) per capita incomes (i) tequila crisis (i) TPP (i) Trump and (i), (ii), (iii) US border (i) Mian, Atif (i) Microsoft (i) Middle East China’s trade routes (i) failure of liberal democracy (i), (ii) Islam on march (i) US failure to deliver peace (i) US inconsistency (i) US no longer reliant on (i) Milanović, Branko (i) military spending (i), (ii) Millennium Development Goal (i) Miller, Robert (i) Ming Dynasty (i) Minsky, Hyman (i), (ii), (iii)n12 Miss World (i) Mississippi (state) (i) Mitterrand, François (i), (ii) Mogadishu (i) Mohammad, Prophet (i), (ii), (iii) see also Islam Mohammad Mossadeq (i) Mohammad Reza Shah (i) Molotov–Ribbentrop Pact (i) Mombasa (i) Monaco (i) monetarism (i) Mongols (i), (ii), (iii) Montesquieu (i), (ii), (iii) Moore’s Law (i) Moors (i), (ii) Morgenthau, Hans (i), (ii), (iii), (iv)n1 Morsi, Mohammad (i) Moscow (i) Moscow Olympics (i) Mosul (i) ‘Moving to Opportunity’ (US Department of Housing and Urban Development) (i) Mubarak, Hosni (i) Mulan (Disney) (i) Mumbai (i) Muslim Brotherhood (i) Muslims see also Islam Constantinople falls (i) Nigerian clashes (i) Poland and (i) Trump and (i), (ii) UK immigrants (i) Mussolini, Benito (i) Myanmar (i) Nader Shah (i) Napoleonic Wars (i), (ii), (iii), (iv), (v) Nasser, Gamal Abdel (i) nation states (i) decision-making (i) economic logic and (i) ethnic and cultural tensions (i) EU differs from (i) Eurozone (i) globalization and (i), (ii), (iii), (iv) Mazzini on (i) Ottoman Empire (i) them and us (i) National Endowment for Democracy (i) National Health Service (NHS) (i) Native Americans (i) NATO (North Atlantic Treaty) (i), (ii), (iii), (iv) Nazis (i) Nelson, Admiral Lord (i) Netflix (i) Netherlands (i), (ii) New York (i), (ii), (iii), (iv), (v) New York Times (i) New Zealand (i), (ii), (iii) Nice (i) Nicholas II, Tsar (i) Nietzsche, Friedrich (i) Nigeria (i) Nile, River (i) Nineteen Eighty-Four (George Orwell) (i) Nixon, Richard (i) Nixon Shock (i), (ii), (iii) North Africa African trade (i) freedom statistics for (i) Islam reaches (i), (ii) liberal democracy absent (i), (ii) North American Free Trade Agreement (i), (ii) North Korea (i), (ii) Northern Ireland (i), (ii) Norway (i) Nye, Joseph (i) Obama, Barack Asian Infrastructure Investment Bank and (i) Duterte’s insult (i) Merkel and (i) ‘pivot to Asia’ (i), (ii), (iii) rejected for Trump (i) TPP (i) Oborne, Peter (i)n6 OECC (Organisation for European Economic Co-operation) (i), (ii) OECD (Organisation for Economic Co-operation and Development) (i), (ii), (iii)n18 Offa (i) Office of the US Trade Representative (i), (ii) oil 1970s (i) Iran threatens to nationalise (i) price collapses (i), (ii) US and Middle East (i) Oman (i) Oosterbeek (i) Open University (i) Orwell, George (i) Osman I (Ottomans) (i) Ottoman Empire (i) Constantinople falls (i) Crimean War (i) crumbles (i) Egypt in (i) First World War (i) independence from (i) origins of (i) Persia pushes back (i) Pacific (i), (ii), (iii), (iv) see also Trans-Pacific Partnership (TPP) PACOM (US Pacific Command) (i) Pakistan (i), (ii), (iii) Palestinian Authority (i) Pamir Mountains (i) Paracel Islands (i) Paranoid Style (i) Paris (i), (ii), (iii) Paris, Treaty of (1951) (i) Paris climate deal 2015 (i) Party for Freedom (Netherlands) (i) Pearl Harbor (i) per capita incomes China and India (i) China and US (i) Eastern Europe (i) Italy (i) Mexico (i) Nigeria (i) Northern Europe and US (i) Poland (i) UK (i) Ukraine (i) US (i), (ii) various (i) Permanent Court of Arbitration (The Hague) (i) Perón, Juan (i) Persia (i), (ii), (iii), (iv) see also Iran Peru (i) Peter the Great (i) petrodollar (i) see also dollar (US) Pew Research Center (i) Philadelphia (i) Philippines (i), (ii), (iii), (iv) Phytophthora infestans (potato blight) (i) Piketty, Thomas (i) Plaza Accord (i), (ii) Podemos (i) Poland a train route through (i) Coca-Cola (i) Germany post First World War and (i) post fall of Berlin Wall (i) Second Gulf War (i) Western Europe and (i) politicians (i) Poltava, Battle of (i) population ageing (i), (ii), (iii), (iv) population statistics (i) Africa (i) Black Death (i) China (i) EU (i) immigrants in New World (i) India (i) Ireland (i) Syria (i) United States (i), (ii) various (i) populism (i), (ii), (iii), (iv) Port Harcourt (i) Portugal (i), (ii), (iii), (iv) potatoes (i) Powell, Enoch (i) Pratas Islands (i) Princip, Gavrilo (i) Private Eye (i) protectionism (i), (ii), (iii), (iv), (v) Protestants (i) Prussia (i) Putin, Vladimir (i), (ii), (iii), (iv), (v) Al Qaeda (i), (ii)n2 Qing dynasty (i), (ii) quantitative easing (i), (ii), (iii), (iv), (v) Quran (i) Radicals (British political party) (i) railways (i), (ii), (iii) Raj (i) Randall, Alan (i) RBS (i) Reagan, Ronald (i), (ii), (iii), (iv), (v) Red Army (i) Red Feed (i) Reformation (i) refugees (i), (ii), (iii), (iv), (v), (vi) see also asylum seekers; immigration Regional Anti-Terrorist Structure (RATS) (i) Regional Comprehensive Economic Partnership (RCEP) (i), (ii) regulators (i) Reith, Lord (i) Remainers (i) Renesas Electronics (i) Republican Party (US) (i), (ii) Reputation Institute (i) reserve currencies competition for (i) Triffin Dilemma (i) US dollar (i), (ii), (iii), (iv) Revolutionary War (US) (i) Ricardo, David (i), (ii), (iii), (iv)n10 rich, the (i) rising sea levels (i) Robinson, James A.


pages: 593 words: 189,857

Stress Test: Reflections on Financial Crises by Timothy F. Geithner

Affordable Care Act / Obamacare, asset-backed security, Atul Gawande, bank run, banking crisis, Basel III, Bernie Madoff, Bernie Sanders, break the buck, Buckminster Fuller, Carmen Reinhart, central bank independence, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Doomsday Book, eurozone crisis, financial innovation, Flash crash, Goldman Sachs: Vampire Squid, housing crisis, Hyman Minsky, illegal immigration, implied volatility, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, Nate Silver, negative equity, Northern Rock, obamacare, paradox of thrift, pets.com, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, RAND corporation, regulatory arbitrage, reserve currency, Saturday Night Live, savings glut, selection bias, short selling, sovereign wealth fund, The Great Moderation, The Signal and the Noise by Nate Silver, Tobin tax, too big to fail, working poor

It was a scary but relatively painless way to learn about making judgments under the pressure of a crisis, about weighing the relative merits of various choices with potentially catastrophic outcomes. JUST OVER a decade later, I was sitting next to Secretary Rubin in the back of his government car, returning from Capitol Hill during a different kind of crisis. The secretary had just testified before the House Banking Committee about the Mexican peso crisis, often described as the first financial crisis of the twenty-first century. Mexico was on the brink of defaulting on its obligations, and Rubin had made the case for a $40 billion emergency loan. The reaction was withering. With public opinion running 80–20 against a U.S. government rescue, Republicans and Democrats accused the secretary of plotting to waste tax dollars on foreigners, bail out his Wall Street pals who had speculated in Mexico, and even line his own pockets.

A powerful stimulus effort would require a serious mobilization of resources for emerging economies. At an early stage in our internal discussions, Mark Sobel, a veteran Treasury civil servant who held my old international job, and the Fed crisis maven Ted Truman, whom I had recruited to Treasury to help oversee our international efforts, proposed that we should push to expand the IMF emergency fund that we helped create after the Mexican peso crisis. Sobel suggested we try to increase its financing from $50 billion to $300 billion, to make sure it had enough firepower to support countries in trouble. “Let’s do five hundred billion,” I said. The magnitude of the collapse had been huge, and there was no point in undershooting. Just like that, we decided to propose $500 billion. At the meeting of finance officials in Horsham, I had pushed to get the major G-20 countries to commit to a substantial fiscal stimulus program; my staff suggested a target of 2 percent of GDP.


Money and Government: The Past and Future of Economics by Robert Skidelsky

anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, market clearing, market friction, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, mobile money, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, placebo effect, price stability, profit maximization, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

This raises a whole host of problems which are beyond the scope of this book, but should not be irrelevant to the design of long-term macroeconomic policy. V I I. H y p e r- gl oba l i z at ion a n d i t s Disc on t e n t s In the early 1990s it was usual to say that the world economy was ‘reglobalizing’, or returning to its pre-1914 condition after a seventy-year protectionist detour. Three developments have shattered this optimistic prognosis. The first was the unexpected financial meltdown in East Asia in 1997–8, which, following the Mexican peso crisis of 1995, highlighted the instability of global financial markets and the inadequacy of the world’s financial architecture. Second, were the mass protests in Geneva in 1998 and Seattle in 1999 against the setting up of the World Trade Organization (WTO). These marked the start of a popular insurrection against globalization. Insofar as the loose coalition of economic nationalists, anti-capitalists, environmentalists, anarchists and trade unionists had a coherent message, it was that the WTO transferred power from elected governments to multinational corporations.

., 130 Lowndes, William, 41 LTROs (long-term refinancing operations), 257 Lucas, Robert, 194–5, 202–3, 208–11, 292 Lukes, Steven, 13 Luttwak, Edward, 299 Luxemburg, Rosa, 293, 295 Maastricht Treaty (1992), 198 MacDonald, Ramsay, 112 Macmillan Committee on Finance and Industry (1930), 114–17 macroeconomics contrast to natural sciences, 8, 10, 201 and distribution, 293–305 efforts to remove from economics, 386 Keynes introduces concept of, 75, 124, 129 need for inserting society into, 386–90 and REH, 194–5 Say’s Law, 19–20, 36, 96, 110, 190, 293–4 short-run and long-run effects, 14, 38, 48–9, 64, 282, 385 Wicksell’s circular flow, 67–70, 68 see also entries for individual economists, theories and policies 480 i n de x Macron, Emmanuel, 372 Malthus, Thomas, 48–9, 293, 385 ‘Manchester system’, xviii, 122–3 marginal productivity theory, 63, 295 marginal propensity to consume, 118, 125, 133, 272, 297 marginalist revolution (late nineteenth century), 288, 290–91 mark-to-market (M2M) framework, 314 Marshall, Alfred, 63, 64, 65 Marshall Aid, 159, 332 Marshall-Lerner condition, 251* Martin, Felix, 27 Marx, Karl, xviii, 6, 130, 288, 386 labour theory of value, 296 and production of ideas, 12, 14 and under-consumption theory, 293, 296 Marxism, 128–9, 130, 140, 304, 350 and business class, 7, 130 explanations of Great Depression, 298 Masch, Vladimir, 381 Matthews, Robin, 155 Maudling, Reginald, 150, 152 May, Theresa, 248 Mazzucato, Mariana, 353, 354 media, 7, 13 mercantilism, 9, 28, 36–7, 74, 75–6, 77–81, 82, 84–5, 93 developing countries in twentiethcentury, 90 export surpluses in present-day, 380 German Historical School, 88–9 Merkel, Angela, 29, 236 Mesopotamian empire, 26 Methuen Treaty (1703), 78 Mexican peso crisis (1995), 371 microeconomics, 75, 174, 192, 384, 386 of distribution, 290–92 and DSGE modelling, 211 and Friedman, 177, 180 limitations of, 387 and New Consensus, 199, 201 radicalization of by Conservatives, 197 of Walras, 10, 173, 181, 385 Middle East, 331, 333, 337 Middleton, Roger, 114 migration, 15, 56, 58, 383 Miles, David, 265 Mill, John Stuart, 21, 369 Essays on Some Unsettled Questions of Political Economy (1844), 19–20, 36, 84 Miller, Marcus, 239 Mills, Terence, 111 Minford, Patrick, 187 Minsky, Hyman, 216, 313 monetarism, 9, 177–84 abandonment of, 184–5, 186, 188 American and British-styles of, 185 and Congdon, 279–85 experiment in (1976–85), 184–90, 189, 270–71 fiscal legacy, 190–93 illusion of self-financing tax cuts, 191–2 policy failure of, 184–5, 186, 187–8, 249 monetary policy and 2008 crash, 10–11, 104, 105, 106, 116, 129, 221, 278–9 bimetallist controversy, 44, 50–52 British recoinage debate (1690s), 40, 41–3 bullionist vs ‘real bills’ controversy, 44, 45–9 Competition and Credit Control Act (1971), 168 and control of inflation, 181–2, 185, 186–7, 189, 190, 193, 201 creditors and debtors, 29–32, 37, 39, 47 481 i n de x monetary policy – (cont.)


pages: 246 words: 74,341

Financial Fiasco: How America's Infatuation With Homeownership and Easy Money Created the Economic Crisis by Johan Norberg

accounting loophole / creative accounting, bank run, banking crisis, Bernie Madoff, Black Swan, business cycle, capital controls, central bank independence, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Brooks, diversification, financial deregulation, financial innovation, helicopter parent, Home mortgage interest deduction, housing crisis, Howard Zinn, Hyman Minsky, Isaac Newton, Joseph Schumpeter, Long Term Capital Management, market bubble, Martin Wolf, Mexican peso crisis / tequila crisis, millennium bug, money market fund, moral hazard, mortgage tax deduction, Naomi Klein, new economy, Northern Rock, Own Your Own Home, price stability, Ronald Reagan, savings glut, short selling, Silicon Valley, South Sea Bubble, The Wealth of Nations by Adam Smith, too big to fail

The market stabilized very quickly, and the ink of the magazines warning of a repeat of the Great Depression had hardly dried before the economy had shaken off the stock market crash and was back on track. A hero had been born. With Greenspan at the helm, the Fed used the same modus operandi whenever crisis loomed: quickly cut the benchmark rate and pump liquidity into the economy. That is what it did at the time of the Gulf War, the Mexican peso crisis, the Asian crisis, the collapse of the Long-Term Capital Management hedge fund, the worries about the millennium bug, and the dot-com crash-and on each occasion, commentators were surprised by the mildness of the subsequent downturn. In someone with Greenspan's clear-cut opinions about the importance of free markets, this readiness to throw money at all problems was surprising. However, to a direct question in Congress about his old laissez-faire views of monetary policy, Greenspan replied, "That's a long time ago, and I no longer subscribe to those views."'


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

"Robert Solow", 3D printing, bank run, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, market bubble, market clearing, means of production, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

This inaugurated the decade of misery for the developing countries which began with the Mexican debt crisis and lasted through the 1980s. It was eventually resolved by creditors accepting cancellation of debt and the debtor countries selling some of their natural resources in lieu of repayment of the principal. Mexico was thought to have restored financial prudence and fixed its exchange rates after it had recovered from its debt problem. But in 1994, Mexico was hit by the Mexican peso crisis. Investors from across the world had bought Mexican bonds – the tesebonos. But political turmoil in the Chiapas region led to a panicked withdrawal of capital and a collapse of the peso. The IMF arranged a large loan to help Mexico overcome the shock of the sudden collapse of the currency. This remained a local issue and did not spread beyond Mexico to the US. That, after all, was why the IMF made one of the largest loans it had ever made.


pages: 701 words: 199,010

The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal by Ludwig B. Chincarini

affirmative action, asset-backed security, automated trading system, bank run, banking crisis, Basel III, Bernie Madoff, Black-Scholes formula, business cycle, buttonwood tree, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, discounted cash flows, diversification, diversified portfolio, family office, financial innovation, financial intermediation, fixed income, Flash crash, full employment, Gini coefficient, high net worth, hindsight bias, housing crisis, implied volatility, income inequality, interest rate derivative, interest rate swap, John Meriwether, Kickstarter, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low skilled workers, margin call, market design, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, Mitch Kapor, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Northern Rock, Occupy movement, oil shock, price stability, quantitative easing, quantitative hedge fund, quantitative trading / quantitative finance, Ralph Waldo Emerson, regulatory arbitrage, Renaissance Technologies, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sam Peltzman, Sharpe ratio, short selling, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, survivorship bias, systematic trading, The Great Moderation, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond

(Brazilian government debt is very different from U.S. government debt. It offers high yields, but also high risk. When markets crash, Brazilian debt behaves more like equity than fixed income and usually crashes very fast. Latin American countries have frequently defaulted on their debt, causing large losses on these bonds. For example, after Mexico devalued its currency in December 1994—the so-called Mexican Peso crisis—Brazilian C bonds dropped by 50%.) LTCM also bought Russian government bonds denominated in Euros. Emerging economies had a history of devaluing their currencies. Debt payable in dollars or Euros was thought to be more secure—if, of course, the country didn’t default altogether. LTCM’s direct exposure to Russia, Brazil, and other countries was a small part of its portfolio and was not the principal reason for its troubles.

This is measured as the average of exports and imports divided by GDP. 8. This is computed by comparing the prices of Greek goods, adjusted for the exchange rate, against 36 other countries. See Eurostat. 9. On the day of the announcement it was revised to 12.7%, but later bumped up again. 10. See Avdjiev et al. (2010). 11. MF Global, for example. 12. The late Rudi Dornbusch, MIT’s famous international economist, said this to a group at MIT after the Mexican Peso crisis, when interest rates were very high and people were considering investing. 13.Helenic Republic Press Release. 14. Even these numbers must be treated cautiously, because much Greek data is suspect. 15.The Greek people voted heavily for the anti-austerity party in the May 6, 2012 elections. In surveys, 70% of the Greeks do not want to leave the Euro, but also don't want the austerity measures. 16.On May 14, 2012, 700 million Euros were removed from Greek banks due to worries about the future of Greece. 17.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

active measures, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business climate, business cycle, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, declining real wages, deindustrialization, endogenous growth, eurozone crisis, financial innovation, first-past-the-post, full employment, Hyman Minsky, industrial robot, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, light touch regulation, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, Mexican peso crisis / tequila crisis, money market fund, mortgage debt, Myron Scholes, negative equity, new economy, Northern Rock, paper trading, Paul Samuelson, planetary scale, post-oil, price stability, quantitative easing, reserve currency, rising living standards, Ronald Reagan, special economic zone, Steve Jobs, structural adjustment programs, systematic trading, too big to fail, trickle-down economics, urban renewal, War on Poverty, WikiLeaks, Yom Kippur War

This carry trade expanded significantly the Minotaur’s inflows, thus speeding up the financialization process that was to be, paradoxically, the Minotaur’s undoing. And it was not just the induced crisis in Japan that contributed to the Minotaur’s rapid expansion. Financialization, coupled with repeated attempts to tie domestic currencies to the US dollar (the so-called dollar peg), led to a long chain of financial crises whose ultimate effect was a real economic meltdown in each link of the chain. The chain began in 1994 with the Mexican peso crisis, then moved to South East Asia (with the collapse of the Thai baht, the South Korean won and the Indonesian rupiah), proceeded to Russia and soon ended up back in Latin America (with Argentina being its most tragic victim). All these crises began with a large inflow of cheap foreign capital that led to bubbles in the real estate markets. However, once they burst, a violent outflow of capital, plus a friendly visit by the good people of the IMF, turned these economies into the financial equivalent of scorched earth.


pages: 365 words: 88,125

23 Things They Don't Tell You About Capitalism by Ha-Joon Chang

"Robert Solow", affirmative action, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, borderless world, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, deskilling, ending welfare as we know it, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, full employment, German hyperinflation, Gini coefficient, hiring and firing, Hyman Minsky, income inequality, income per capita, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market fundamentalism, means of production, Mexican peso crisis / tequila crisis, microcredit, Myron Scholes, North Sea oil, offshore financial centre, old-boy network, post-industrial society, price stability, profit maximization, profit motive, purchasing power parity, rent control, shareholder value, short selling, Skype, structural adjustment programs, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, Toyota Production System, trade liberalization, trickle-down economics, women in the workforce, working poor, zero-sum game

Economists are not some innocent technicians who did a decent job within the narrow confines of their expertise until they were collectively wrong-footed by a once-in-a-century disaster that no one could have predicted. Over the last three decades, economists played an important role in creating the conditions of the 2008 crisis (and dozens of smaller financial crises that came before it since the early 1980s, such as the 1982 Third World debt crisis, the 1995 Mexican peso crisis, the 1997 Asian crisis and the 1998 Russian crisis) by providing theoretical justifications for financial deregulation and the unrestrained pursuit of short-term profits. More broadly, they advanced theories that justified the policies that have led to slower growth, higher inequality, heightened job insecurity and more frequent financial crises that have dogged the world in the last three decades (see Things 2, 6, 13 and 21).


pages: 391 words: 102,301

Zero-Sum Future: American Power in an Age of Anxiety by Gideon Rachman

Asian financial crisis, bank run, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Bretton Woods, BRICs, capital controls, centre right, clean water, collapse of Lehman Brothers, colonial rule, currency manipulation / currency intervention, deindustrialization, Deng Xiaoping, Doha Development Round, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, global reserve currency, greed is good, Hernando de Soto, illegal immigration, income inequality, invisible hand, Jeff Bezos, laissez-faire capitalism, Live Aid, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, mutually assured destruction, Naomi Klein, Nelson Mandela, offshore financial centre, open borders, open economy, Peace of Westphalia, peak oil, pension reform, plutocrats, Plutocrats, popular capitalism, price stability, RAND corporation, reserve currency, rising living standards, road to serfdom, Ronald Reagan, shareholder value, Sinatra Doctrine, sovereign wealth fund, special economic zone, Steve Jobs, Stewart Brand, The Chicago School, The Great Moderation, The Myth of the Rational Market, Thomas Malthus, trickle-down economics, Washington Consensus, Winter of Discontent, zero-sum game

There was a sharp continent-wide recovery in Latin America in the mid-1980s, but it was followed by a downturn. By the end of the decade most countries had conquered hyperinflation and brought sanity to their government finances. The cutting of tariff barriers did spur trade. Countries like Brazil, Chile, and Mexico experienced export booms. Even as growth strengthened in the 1990s, however, it was still punctuated by financial crises. The “Tequila crisis” in Mexico in 1994 showed that the country was still prone to debt and currency disorders. It provoked a short but very deep recession and required emergency loans of billions of dollars from the United States. The emerging-market panic of 1998, which started in Russia, sparked another bout of capital flight in Latin America, mirroring the debt crisis of 1982 that had provoked the free-market reforms in the first place.

., 2–3, 4, 40, 96–97, 107, 110, 165 Strauss-Kahn, Dominique, 152, 219 Sudan, 195, 205, 223, 226, 227, 231, 246, 247, 248, 275, 289 Sullivan, Andrew, 280 Summers, Larry, 7, 117–18, 156, 184 Suskind, Ron, 168 Sweden, 150, 156 Switzerland, 96, 101, 269 Taiwan, 60, 82, 136–37, 143, 186, 237, 249 Talbott, Strobe, 126, 217, 304n Taliban, 167, 239, 252 tariffs, 74, 75, 77, 83, 265, 266, 267 taxes, 49, 94, 109, 115, 216, 236, 267 cuts in, 17, 32, 35, 38, 39, 74, 75, 83, 116 Tax Reform Act (1986), 38 Tbilisi, 233, 234 Tea Party movement, 268 technology, 27, 56, 87, 111, 118–28, 131, 174, 203, 271 climate change and, 203, 204, 286–87 global warming and, 125–26 gloomy predictions and, 125, 204, 206 India and, 6, 81, 84–85, 141 peace and, 5–6, 126 U.S., 93, 95, 118–26, 165, 167, 184, 187, 261 see also information technology television, 119, 124, 135, 234–37, 285 Tennyson, Alfred, Lord, 225 Tequila crisis (1994), 77 terror, war on, 96, 165, 198, 199, 211, 212, 244, 245 terrorism, 36, 161–62, 166, 174, 198, 199, 210, 220, 257, 258, 259, 280 nuclear proliferation and, 211–12 in Pakistan, 211, 212, 251, 252, 256, 313n see also 9/11 Tett, Gillian, 123 Texas A&M, 179–81 Thailand, 6, 60, 142, 143, 159–60 Thatcher, Margaret, 16–17, 29–36, 39–52, 54, 69, 74, 89, 114, 136, 191, 279 Falklands War and, 34, 43, 76 France and, 45–46, 48, 49 Hayek and, 118 as “iron lady,” 34, 42, 45 M.


pages: 319 words: 106,772

Irrational Exuberance: With a New Preface by the Author by Robert J. Shiller

Andrei Shleifer, asset allocation, banking crisis, Benoit Mandelbrot, business cycle, buy and hold, computer age, correlation does not imply causation, Daniel Kahneman / Amos Tversky, demographic transition, diversification, diversified portfolio, equity premium, Everybody Ought to Be Rich, experimental subject, hindsight bias, income per capita, index fund, Intergovernmental Panel on Climate Change (IPCC), Joseph Schumpeter, Long Term Capital Management, loss aversion, mandelbrot fractal, market bubble, market design, market fundamentalism, Mexican peso crisis / tequila crisis, Milgram experiment, money market fund, moral hazard, new economy, open economy, pattern recognition, Ponzi scheme, price anchoring, random walk, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Small Order Execution System, spice trade, statistical model, stocks for the long run, survivorship bias, the market place, Tobin tax, transaction costs, tulip mania, urban decay, Y2K

., 166, 257n19 Malaysia, 5 Managed capitalism, 112 Managerial revolutions, 113 Mandel, Michael, 112 Mandelbrot, Benoit, 244n22 Marcos, Ferdinand, 123 Marsh, Terry, 189, 261n26 Martin, William McChesney, 224 Massachusetts Investors Trust, 35 Master-charting, 106 Mean reversion, 129, 252n13 Media, 71–95, 118, 163, 203, 206, 208–9, 241n40, 245–48n1–24; attention cascades and, 79–82, 88; big price changes and absence of news, 78–79; bull market of 1990s INDEX and, 113; crash of 1929 and, 82–88; crash of 1987 and, 88–95; cultivation of debate by, 72–74; effect of significant world events on prices, 75–77; epidemics and, 160–62; expansion of business reporting, 19, 28–29; face-to-face communications versus, 154–57; market moves and, 72; market outlook and, 74–75; new era thinking and, 98; origins of, 245n1; peak of 1901 and, 100–101; psychological anchors and, 147; record overload and, 75; speculative bubbles and, 95; tag-along news and, 77–78 Mehra, Raj, 263n1 Mehta, Harshad (“Big Bull”), 127 Mehta Peak, 127 Meksi, Aleksander, 65 Meltzer, Allan, 84 Mergers, 106 Merrill Lynch, xv, 22 Merton, Robert, 189, 261n26 Mexican peso crisis, 128–29 Mexico, 5 Microsoft, 211, 212 Milestones for Dow, 137 Milgram, Stanley, 150–51, 256n4 Milgrom, Paul, 255n20 Millennium. See Turn-of-century optimism Millennium boom, 6 Miller, Merton, 184 Millionaire Next Door, The (Stanley and Danko), 50–51, 141–42 Mispricing: examples of obvious, 175–76; questioning examples of, 176–79; statistical evidence of, 179–80 Mitchell, Mark L., 248n21 Mitchell, Olivia, 265n15 Mitterrand, François, 128 Modigliani, Franco, 37 IN D E X Momentum, 236n11.


pages: 497 words: 123,718

A Game as Old as Empire: The Secret World of Economic Hit Men and the Web of Global Corruption by Steven Hiatt; John Perkins

addicted to oil, airline deregulation, Andrei Shleifer, Asian financial crisis, Berlin Wall, big-box store, Bob Geldof, Bretton Woods, British Empire, capital controls, centre right, clean water, colonial rule, corporate governance, corporate personhood, deglobalization, deindustrialization, Doha Development Round, energy security, European colonialism, financial deregulation, financial independence, full employment, global village, high net worth, land reform, large denomination, liberal capitalism, Long Term Capital Management, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, Naomi Klein, new economy, North Sea oil, offshore financial centre, oil shock, Ponzi scheme, race to the bottom, reserve currency, Ronald Reagan, Scramble for Africa, statistical model, structural adjustment programs, too big to fail, trade liberalization, transatlantic slave trade, transfer pricing, union organizing, Washington Consensus, working-age population, Yom Kippur War

By the end of the Brady Plan in 1993, this semi-voluntary scheme had provided another modest dose of relief, mainly to middle-income Latin American countries like Argentina, Brazil, and Mexico, plus a few U.S. favorites elsewhere like Poland, the Philippines, and Jordan.35 With the help of taxpayer subsidies, the Brady Plan also succeeded in virtually wiping out the debts of a handful of smaller countries—Guyana, Mozambique, Niger, and Uganda. By 1994, just before Mexico’s “Tequila Crisis,” the Brady Plan had yielded about $124 billion (in 2006 NPV dollars) of debt relief, at a cost of $66 billion in taxpayer subsidies. Today, the Brady Plan remains the largest and most costly debt-relief initiative. Some analysts have argued that the Brady Plan also had an indirect beneficial effect on the quantity of new loans and investments received by debtor countries in 1989-93 because of its impact on equity markets and direct investment.

Second, while institutions like the World Bank may be concerned about the impact of debt relief on their debt-financing costs, most ECAs—unlike, say, U.S. savings and loan banks in the 1980s—are fully funded by taxes and don’t have to worry about the impacts of writing down debt. 14. For example, Mexico’s leading banker, Robert Hernandez, purchased Banamex, the country’s second largest bank, from the Salinas government in 1991 for just $3 billion. Over the next decade, he received about $5 billion of financing from the Mexican government that was supposedly invested in the bank. Meanwhile, during the 1994-95 “Tequila Crisis,” former Goldman Sachs partner and U.S. Treasury Secretary Robert Rubin helped to assemble a $30 billion bailout package for Mexico from the World Bank, the IMF, and the U.S. government. Mexico, in turn, used a large share of the money to bail out banks such as Banamex. In theory, these banks should have become the property of the Mexican government again. In practice, owners like Hernandez were permitted to retain their ownership interests without repaying the funds.


pages: 479 words: 113,510

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America by Danielle Dimartino Booth

Affordable Care Act / Obamacare, asset-backed security, bank run, barriers to entry, Basel III, Bernie Sanders, break the buck, Bretton Woods, business cycle, central bank independence, collateralized debt obligation, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, financial deregulation, financial innovation, fixed income, Flash crash, forward guidance, full employment, George Akerlof, greed is good, high net worth, housing crisis, income inequality, index fund, inflation targeting, interest rate swap, invisible hand, John Meriwether, Joseph Schumpeter, liquidity trap, London Whale, Long Term Capital Management, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, moral hazard, Myron Scholes, natural language processing, negative equity, new economy, Northern Rock, obamacare, price stability, pushing on a string, quantitative easing, regulatory arbitrage, Robert Shiller, Robert Shiller, Ronald Reagan, selection bias, short selling, side project, Silicon Valley, The Great Moderation, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, yield curve

Treasury Department in 1988 after three years as an Asia specialist at the consulting firm Kissinger Associates (which later became Kissinger McLarty), his only stint in the private sector. From 1998 to 2001, Geithner served as undersecretary of International Affairs under both Rubin and Summers, participating in negotiations involving various crises including the bailout of LTCM, the Mexican peso crisis, and the Asian meltdown. In October 2003, after rotating through positions at the Council on Foreign Relations and the International Monetary Fund (IMF), Geithner was named president of the New York Fed. Geithner’s appointment was met by snarky rumblings on the Street referring to him as a lackey for Summers and Rubin, the dynamic duo who championed deregulation of the financial system.


pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

air freight, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, break the buck, Bretton Woods, business cycle, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy, zero-sum game

But ‘Greater policy space [that is, the ability to use monetary and fiscal policy relatively freely because of strong initial conditions] and better policy frameworks account for the remaining three-fifths of the improvement in their performance.’14 In many respects, emerging and developing countries appear almost to have changed places with the high-income countries in the 2000s. The latter have suffered huge financial crises, big recessions, and correspondingly large rises in fiscal deficits and debt. This is the sort of picture we used to see in emerging and developing countries: one crisis came on the heels of another, notably the Latin American debt crisis of the 1980s, the ‘Tequila crisis’ in Mexico and then other Latin American countries in the mid-1990s, the Asian financial crisis of 1997–98, and the crises in Russia (1998), Brazil (1998–99) and Argentina (2000–01). But emerging countries suffered far fewer banking crises in the 2000s than in the 1980s and 1990s, largely because few had experienced big credit booms in the earlier 2000s. That left them in a good position to expand domestic credit in response to the crises of 2008 and 2009.

Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again. John Maynard Keynes, Tract on Monetary Reform, 19232 Of all the many ways of organising banking, the worst is the one we have today. Mervyn King, ‘Banking from Bagehot to Basel, and Back Again’, 20103 Since 1980, the world has suffered six globally significant financial crises: the Latin American debt crisis of the early 1980s; the Japanese crisis of the 1990s; the Tequila crisis of 1994, whose epicentre was Mexico, but which also affected many parts of Latin America; the East Asian crisis of 1997–99; the global financial crisis of 2007–09; and the Eurozone financial crisis of 2010–13. This list leaves aside many national crises – the 2001 crisis in Argentina, for example – and significant regional crises, including the Scandinavian crisis of the early 1990s. Indeed, one authoritative source estimates there were 147 banking crises between 1970 and 2011.4 Driven by trade and foreign direct investment, economic globalization has produced impressive results, notably the successful integration of China and, to a smaller degree, India, into the world economy, together with large reductions in mass poverty in these and other emerging and developing countries.


pages: 535 words: 158,863

Superclass: The Global Power Elite and the World They Are Making by David Rothkopf

airport security, anti-communist, asset allocation, Ayatollah Khomeini, bank run, barriers to entry, Berlin Wall, Bob Geldof, Branko Milanovic, Bretton Woods, BRICs, business cycle, carried interest, clean water, corporate governance, creative destruction, crony capitalism, David Brooks, Doha Development Round, Donald Trump, financial innovation, fixed income, Francis Fukuyama: the end of history, Gini coefficient, global village, high net worth, income inequality, industrial cluster, informal economy, Internet Archive, Jeff Bezos, jimmy wales, joint-stock company, knowledge economy, liberal capitalism, Live Aid, Long Term Capital Management, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, Marshall McLuhan, Martin Wolf, mass immigration, means of production, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, Nelson Mandela, old-boy network, open borders, plutocrats, Plutocrats, Ponzi scheme, price mechanism, shareholder value, Skype, special economic zone, Steve Jobs, Thorstein Veblen, too big to fail, trade liberalization, trickle-down economics, upwardly mobile, Vilfredo Pareto, Washington Consensus, William Langewiesche

Because of America’s international reach and power, the revolving door to the financial community is a phenomenon with global consequences. It is no accident that this group is broadly predisposed to policy prescriptions such as open borders, less regulation, and lower taxes. It also favors debt restructurings and bailouts for bad loans, as in the cases of the Brady Plan after the Latin debt crises of the 1980s and U.S. intervention to avert financial catastrophe in Mexico during the Tequila Crisis of late 1994 and 1995. In many respects this is not simply because one group influences another. It is because there is only one group, with its individual members moving from one set of jobs to another. Given that this group is globally sophisticated, well educated, intelligent, and successful by any measure, it is not surprising that much of what they advocate is also smart and worth implementing.

Butler’s testimony echoes arguments of current vintage that both of our recent Gulf Wars have been fought for the benefit of oil companies to ensure that production remained uninterrupted and that threats to it were offset. These interventions have produced other beneficiaries who turn out to have considerable influence, like federal contractors such as the company once led by Vice President Cheney, Halliburton. In a similar way, during the Clinton and prior Bush eras, many pointed out that the financial bailouts associated with the emerging markets crash of 1997-98, with the Tequila Crisis, and with the savings-and-loan crisis of the late 1980s and early ’90s greatly benefited the Wall Street colleagues and friends of Robert Rubin and Nicholas Brady, who also happened to be among the core groups they consulted in arriving at their decisions. Yes, these interventions also had important macroeconomic benefits, and the consequences of failing to undertake them would have been severe.


Commodity Trading Advisors: Risk, Performance Analysis, and Selection by Greg N. Gregoriou, Vassilios Karavas, François-Serge Lhabitant, Fabrice Douglas Rouah

Asian financial crisis, asset allocation, backtesting, buy and hold, capital asset pricing model, collateralized debt obligation, commodity trading advisor, compound rate of return, constrained optimization, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, discrete time, distributed generation, diversification, diversified portfolio, dividend-yielding stocks, fixed income, high net worth, implied volatility, index arbitrage, index fund, interest rate swap, iterative process, linear programming, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, p-value, Pareto efficiency, Ponzi scheme, quantitative trading / quantitative finance, random walk, risk-adjusted returns, risk/return, selection bias, Sharpe ratio, short selling, stochastic process, survivorship bias, systematic trading, technology bubble, transaction costs, value at risk, zero-sum game

INTRODUCTION In recent years, hedge funds and commodity trading advisors (CTAs) have drawn considerable attention from regulators, investors, academics, and the general public.1 Much of the attention has focused on the concern that hedge funds and CTAs exert a disproportionate and destabilizing influence on financial markets, which can lead to increased price volatility and, in some cases, financial crises (e.g., Eichengreen and Mathieson 1998). Hedge fund trading has been blamed for many financial distresses, including the 1992 European Exchange Rate Mechanism crisis, the 1994 Mexican peso crisis, the 1997 Asian financial crisis, and the 2000 bust in U.S. technology stock prices. A spectacular example of concerns about hedge funds can be found in the collapse and subsequent financial bailout of Long-Term Capital Management (e.g., Edwards 1999). The concerns about hedge fund and CTA trading extend beyond financial markets to other speculative markets, such as commodity futures markets.


pages: 225 words: 61,388

Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa by Dambisa Moyo

affirmative action, Asian financial crisis, Bob Geldof, Bretton Woods, business cycle, buy and hold, colonial rule, correlation does not imply causation, credit crunch, diversification, diversified portfolio, en.wikipedia.org, European colonialism, failed state, financial innovation, financial intermediation, Hernando de Soto, income inequality, information asymmetry, invisible hand, Live Aid, M-Pesa, market fundamentalism, Mexican peso crisis / tequila crisis, microcredit, moral hazard, Ponzi scheme, rent-seeking, Ronald Reagan, sovereign wealth fund, The Chicago School, trade liberalization, transaction costs, trickle-down economics, Washington Consensus, Yom Kippur War

This is the misguided idea that all emerging countries are tarred with the same brush, and that if one defaults then inevitably all others in the same category, regardless of their unique situations, will follow suit. The 1997 East Asian crisis is an illustration of this. Although the financial problems were initially confined to the East Asian economies, countries such as Brazil, where the stock market fell by 24 per cent, and South Africa, where it fell by 23 per cent (both in dollar terms) over the same period, also felt the pain. The Mexican tequila crisis of 1994 and the Russian flu of 1998 are other examples of how the international markets’ negative reactions to one country spill over and unfairly penalize other countries. In theory, the risk for an African government is that it could be susceptible to its neighbours’ bad news and, without notice, investors could take their money out, leaving a country cash-strapped. With the bond markets effectively shut, a country’s carefully scripted economic plans can be suddenly placed in jeopardy, through no fault of its own.


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, plutocrats, Plutocrats, price mechanism, price stability, prisoner's dilemma, profit maximization, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

Despite all the hype about a borderless global economy, the world is still organized around national economies and national currencies; the foreign exchange market is where national price systems are joined to the world market. Problems in the relation between those countries and the outside world often express themselves as currency crises. Two recent examples of this are the European monetary crisis of 1992 and the Mexican peso crisis of 1994. In both cases, one could blame the turmoil on speculators, and one would be partly right — but also in both cases, the political momentum for economic integration had gotten way ahead of the fundamentals. Weaker economies like Italy's and Britain's were being thrust into direct competi- INSTRUMENTS tion with Germany's, just as Mexico was being thrown into competition with the U.S.


pages: 318 words: 77,223

The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse by Mohamed A. El-Erian

activist fund / activist shareholder / activist investor, Airbnb, balance sheet recession, bank run, barriers to entry, break the buck, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, collapse of Lehman Brothers, corporate governance, currency peg, disruptive innovation, Erik Brynjolfsson, eurozone crisis, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, friendly fire, full employment, future of work, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, income inequality, inflation targeting, Jeff Bezos, Kenneth Rogoff, Khan Academy, liquidity trap, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Norman Mailer, oil shale / tar sands, price stability, principal–agent problem, quantitative easing, risk tolerance, risk-adjusted returns, risk/return, Second Machine Age, secular stagnation, sharing economy, sovereign wealth fund, The Great Moderation, The Wisdom of Crowds, too big to fail, University of East Anglia, yield curve, zero-sum game

The generalized slowdown in growth is happening at a time when several economies have already used up some of the considerable resilience they had gained in the run-up to the 2008 global financial crisis—resilience that had served them and the global economy as well. Having gone through their own internally generated debt and financial crises—and multiple times, including during Latin America’s lost decade of the 1980s, the 1994–95 Mexican tequila crisis, the 1997 Asian crisis, the 1998 Russian default, the 2001 Argentine default, and the 2002 Brazilian crisis—many emerging economies embarked on comprehensive “self-insurance” programs. They involved various combinations of five key items that remain relevant today: • Building up large financial buffers in the form of ample international reserves; • Adopting more flexible exchange rates; • Reducing the currency mismatch between debt issuance and assets/revenues (or what is known by economists as the “original sin”); • Paying off some debt obligations and refinancing others on more favorable terms, including via longer maturities and lower interest rates; and • Embarking on institutional changes that render domestic economic management more responsible and responsive.


pages: 233 words: 75,712

In Defense of Global Capitalism by Johan Norberg

anti-globalists, Asian financial crisis, capital controls, clean water, correlation does not imply causation, creative destruction, Deng Xiaoping, Edward Glaeser, Gini coefficient, half of the world's population has never made a phone call, Hernando de Soto, illegal immigration, income inequality, income per capita, informal economy, Joseph Schumpeter, Kenneth Rogoff, land reform, Lao Tzu, liberal capitalism, market fundamentalism, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, open economy, prediction markets, profit motive, race to the bottom, rising living standards, Silicon Valley, Simon Kuznets, structural adjustment programs, The Wealth of Nations by Adam Smith, Tobin tax, trade liberalization, trade route, transaction costs, trickle-down economics, union organizing, zero-sum game

This is also why liberal economies with freer financial markets emerge from their crises more quickly. We can compare the rapid recovery of many Asian states after the Asian crisis with Latin America’s crisis of the early 1980s, after which Latin American countries imposed controls on capital outflows and refrained from liberal reforms. The result was a lost decade of inflation, prolonged unemployment, and low growth. Compare Mexico’s rapid recovery after the ‘‘Tequila crisis’’ of 1995 with the same country’s prolonged depression after the debt crisis of 1982. Another problem with capital controls is that they are hard to maintain in a world of ever-improving, ever-faster communication. They are in practice an invitation to crime, and a great deal of investors’ time is devoted to circumventing the regulations. The longer a regulation has been in force, the less effective it becomes, because investors then have time to find ways around it.


Crisis and Dollarization in Ecuador: Stability, Growth, and Social Equity by Paul Ely Beckerman, Andrés Solimano

banking crisis, banks create money, barriers to entry, business cycle, capital controls, Carmen Reinhart, carried interest, central bank independence, centre right, clean water, currency peg, declining real wages, disintermediation, financial intermediation, fixed income, floating exchange rates, Gini coefficient, income inequality, income per capita, labor-force participation, land reform, London Interbank Offered Rate, Mexican peso crisis / tequila crisis, microcredit, money: store of value / unit of account / medium of exchange, offshore financial centre, old-boy network, open economy, pension reform, price stability, rent-seeking, school vouchers, seigniorage, trade liberalization, women in the workforce

Table 3.2 shows some of Argentina’s recent macroeconomic performance indicators. Inflation declined sharply from the hyperinflation years 1989–90, but the 1990s were characterized by a strikingly high variability of real GDP growth. The economy grew rapidly in the years immediately following the institution of convertibility in 1991. In 1995, however, the Argentine financial system was badly affected by Mexico’s “Tequila” crisis (Baliño and others 1997 describe how the Argentine authorities coped with heavy deposit withdrawals while maintaining convertibility). After a recovery in 1996 and 1997, Argentina’s economy went into a protracted recession in 1998. Heavy external debt was a major contributor and the onset of the East Asian, Russian, and Brazilian financial crises compounded Argentina’s difficulties. Per-capita real GDP and nongovernment consumption both declined sharply after 1997.


pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low skilled workers, market clearing, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, women in the workforce, working-age population, Y2K, Yom Kippur War

Given that many profit-hungry US companies chose to invest all over the world – including its emerging parts – this is a remarkable and historically unprecedented result. Partly, it reflects the increasing instability of the financial system as a whole. Following the collapse of the Berlin Wall, crisis layered upon crisis: an early 1990s credit crunch, the 1992 European exchange-rate crisis, the Mexican ‘tequila’ crisis, the Asian crisis, the Russian and Argentine defaults, the dot.com bubble and subsequent bust, the sub-prime crisis and, of course, the global meltdown that followed. Figure 4.1: 10-year returns for US government bonds and US equities Source: HSBC Figure 4.2: 10-year annualized returns across developed and emerging nations Source: HSBC. Returns data for the ten years to 2000 are not available for Brazil and China and, hence, for the emerging nations as a whole.


pages: 526 words: 158,913

Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America by Greg Farrell

Airbus A320, Apple's 1984 Super Bowl advert, bank run, banking crisis, bonus culture, call centre, Captain Sullenberger Hudson, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, financial innovation, fixed income, glass ceiling, high net worth, Long Term Capital Management, mass affluent, Mexican peso crisis / tequila crisis, Nelson Mandela, plutocrats, Plutocrats, Ronald Reagan, six sigma, sovereign wealth fund, technology bubble, too big to fail, US Airways Flight 1549, yield curve

The idea of public service resonated with Thain, as did the challenge of restoring a national treasure to its former glory. It was in line with a Goldman Sachs tradition in which senior partners left Wall Street for the halls of government. John Whitehead, who led Goldman Sachs in the 1980s, served as deputy secretary of state in the Reagan White House, and Rubin, who joined the Clinton administration, had won wide acclaim for his role in helping to defuse the Mexican peso crisis. Based on his success in Washington, Rubin was recruited to Citibank in 1999 by Sandy Weill to serve as vice chairman, a position that gave him wide-ranging power and a substantial paycheck without the nagging concerns of day-to-day responsibilities at the bank. A week after his conversation with Reed, Thain called his fellow MIT alumnus to discuss the NYSE opportunity further. It didn’t take long before he accepted the job.


pages: 353 words: 98,267

The Price of Everything: And the Hidden Logic of Value by Eduardo Porter

Alvin Roth, Asian financial crisis, Ayatollah Khomeini, banking crisis, barriers to entry, Berlin Wall, British Empire, capital controls, Carmen Reinhart, Cass Sunstein, clean water, Credit Default Swap, Deng Xiaoping, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, Ford paid five dollars a day, full employment, George Akerlof, Gordon Gekko, guest worker program, happiness index / gross national happiness, housing crisis, illegal immigration, immigration reform, income inequality, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: technological unemployment, Joshua Gans and Andrew Leigh, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, longitudinal study, loss aversion, low skilled workers, Martin Wolf, means of production, Menlo Park, Mexican peso crisis / tequila crisis, Monkeys Reject Unequal Pay, new economy, New Urbanism, peer-to-peer, pension reform, Peter Singer: altruism, pets.com, placebo effect, price discrimination, price stability, rent-seeking, Richard Thaler, rising living standards, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Stewart Brand, superstar cities, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, transatlantic slave trade, ultimatum game, unpaid internship, urban planning, Veblen good, women in the workforce, World Values Survey, Yom Kippur War, young professional, zero-sum game

By October of 2002 the NASDAQ was back where it had been in 1996. In 2010, Time Warner quietly spun off AOL for a tiny fraction of its price a decade before. The dot-com crash was preceded by the Asian financial crisis, with subsidiary bubblettes from Russia to Brazil, when a surge of money into promising “emerging markets” abruptly went into reverse. Similar dynamics caused investors to pummel the Mexican peso during the tequila crisis a few years before. Japan’s Nikkei 225 stock index tripled in real terms between January 1985 and December 1989, only to fall 60 percent over the next two and a half years. The very concept of a financial bubble is three hundred years old, added to the vernacular of finance in 1720 when French, Dutch, and British investors succumbed to euphoria over the potential of new trade routes across the Atlantic—pushing up stock prices before they ended in a precipitous crash.


pages: 356 words: 103,944

The Globalization Paradox: Democracy and the Future of the World Economy by Dani Rodrik

affirmative action, Asian financial crisis, bank run, banking crisis, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, colonial rule, Corn Laws, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, Doha Development Round, en.wikipedia.org, endogenous growth, eurozone crisis, financial deregulation, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, George Akerlof, guest worker program, Hernando de Soto, immigration reform, income inequality, income per capita, industrial cluster, information asymmetry, joint-stock company, Kenneth Rogoff, land reform, liberal capitalism, light touch regulation, Long Term Capital Management, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, microcredit, Monroe Doctrine, moral hazard, night-watchman state, non-tariff barriers, offshore financial centre, oil shock, open borders, open economy, Paul Samuelson, price stability, profit maximization, race to the bottom, regulatory arbitrage, savings glut, Silicon Valley, special drawing rights, special economic zone, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tobin tax, too big to fail, trade liberalization, trade route, transaction costs, tulip mania, Washington Consensus, World Values Survey

It was Europe’s turn in the early 1990s, when currency traders successfully speculated against the central banks of several European countries (such as England, Italy, and Sweden). These countries had tried to limit currency movement by tying their currencies closely to the deutschmark, but financial markets forced devaluations on them. The mid-1990s saw another round of financial crises, the most severe of which was the “tequila crisis” in Mexico (1994) brought on by a sudden reversal in capital flows. The Asian financial crisis followed in 1997–98, which would then spill over to Russia (1998), Brazil (1999), Argentina (2000), and eventually Turkey (2001). These are only the better-known cases. One review identified 124 banking crises, 208 currency crises, and 63 sovereign debt crises between 1970 and 2008.28 After a lull in the early years of the new millennium, the subprime mortgage crisis centered in the United States triggered another powerful set of tremors, confronting financially open economies with a sudden dearth of foreign finance and bankrupting a few among them (Iceland, Latvia).


pages: 385 words: 111,807

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

In the late 1980s, the Savings and Loan (S&L) companies in the US – also known as ‘thrifts’ – got into massive trouble, having been allowed by the government to move into more risky, but potentially higher-yielding, activities, such as commercial real estate and consumer loans. The US government had to close down nearly one-quarter of S&Ls and inject public money equivalent to 3 per cent of GDP to clean up the mess. The 1990s started with banking crises in Sweden, Finland and Norway, following their financial deregulations in the late 1980s. Then there was the ‘tequila’ crisis in Mexico in 1994 and 1995. This was followed by crises in the ‘miracle’ economies of Asia – Thailand, Indonesia, Malaysia and South Korea – in 1997, which had resulted from their financial opening-up and deregulation in the late 1980s and the early 1990s. On the heels of the Asian crisis came the Russian crisis of 1998. The Brazilian crisis followed in 1999 and the Argentinian one in 2002, both in large part the results of financial deregulation.


pages: 708 words: 196,859

Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed

Albert Einstein, anti-communist, bank run, banking crisis, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, centre right, credit crunch, currency manipulation / currency intervention, Etonian, full employment, German hyperinflation, index card, invisible hand, Lao Tzu, large denomination, Long Term Capital Management, margin call, market bubble, Mexican peso crisis / tequila crisis, mobile money, money market fund, moral hazard, new economy, open economy, plutocrats, Plutocrats, price stability, purchasing power parity, pushing on a string, rolodex, the market place

Part of the reason for the extent of the world economic collapse of 1929 to 1933 was that it was not just one crisis but, as I describe, a sequence of crises, ricocheting from one side of the Atlantic to the other, each one feeding off the ones before, starting with the contraction in the German economy that began in 1928, the Great Crash on Wall Street in 1929, the serial bank panics that affected the United States from the end of 1930, and the unraveling of European finances in the summer of 1931. Each of these episodes has an analogue to a contemporary crisis. The first shock—the sudden halt in the flow of American capital to Europe in 1928 which tipped Germany into recession—has its counterpart in the Mexican peso crisis of 1994. During the early 1990s, Mexico, much like Germany in the 1920s, allowed itself to borrow too much short-term money. When U.S. interest rates rose sharply in 1994, Mexico, like Germany in 1929, found it progressively harder to roll over its loans and was confronted with a similar choice between deflation or default. There are, of course, differences. Germany in 1928 was much larger compared to the world economy—about three times the relative economic size of Mexico in 1994.51 But the biggest difference was to be found in the management of the crisis.


pages: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

affirmative action, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Bretton Woods, business cycle, capital controls, Cass Sunstein, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial innovation, floating exchange rates, full employment, Gini coefficient, global reserve currency, global village, high net worth, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Just-in-time delivery, Kenneth Rogoff, Long Term Capital Management, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, sovereign wealth fund, special drawing rights, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Washington Consensus, Westphalian system, WikiLeaks, women in the workforce, yield curve

Mexico became a member of the OECD and was held up as an example of successful sequencing of economic and political reforms (in contrast to Russia), with perestroika (economic restructuring) coming before glasnost (political opening). As if to reaffirm Mexico’s international prominence, for the first time, a Mexican man, Octavio Paz, won the Nobel Prize for Literature (1990) and a Mexican woman, Lupita Jones, became Miss Universe (1991). The prestige of the Salinas presidency evaporated with the Zapatista uprising in January 1994, two major political assassinations, the “Tequila Crisis” of December 1994, the first month of Ernesto Zedillo’s sexenio (1994–2000), and the incarceration of Salinas’s brother Raúl in 1995. But Mexico recovered rapidly with the help of a massive US-assisted bailout and continued to consolidate economically and politically under Zedillo. NAFTA led to an immediate increase in average foreign direct investment from US$5 billion to US$13 billion per year, and an average GDP growth (following the crisis year of 1995) of 5.5 percent for the rest of the sexenio. 2000—The Fox Revolution Sooner than anyone anticipated, perestroika led to glasnost.


pages: 492 words: 118,882

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

As these decisions lead to volatility, an economy should not be looked at as a machine-like system operating at equilibrium, but more like an ecology where actions, strategies, and beliefs compete simultaneously creating new behaviours in the process. In other words, an economy is always forming and evolving, and not necessarily in equilibrium. See “A Failed Philosopher Tries Again.” (i) LatAm sovereign debt crisis - 1982, (ii) Savings and loans crisis - 1980s, (iii) Stock market crash - 1987, (iv) Junk bond crash - 1989, (v) Tequila crisis - 1994, (vi) Asia crisis - 1997 to 1998, (vii) Dotcom bubble - 1999 to 2000, (viii) Global financial crisis - 2007 to 2008. 8 9 165 Chapter 4 ■ Complexity Economics: A New Way to Witness Capitalism Secondly, we need to consider the relationship between technology and the economy, for while the economy creates technology, it is also created by technology, as has been explained earlier. The impact of technolgy on the economy has also been discussed in a number of recent works such as Brynjolfsson’s and McAfee’s Race Against the Machine (2011).


pages: 349 words: 134,041

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das

accounting loophole / creative accounting, Albert Einstein, Asian financial crisis, asset-backed security, beat the dealer, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business process, buy and hold, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, commoditize, complexity theory, computerized trading, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, disintermediation, diversification, diversified portfolio, Edward Thorp, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, financial innovation, fixed income, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, John Meriwether, locking in a profit, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, mega-rich, merger arbitrage, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mutually assured destruction, Myron Scholes, new economy, New Journalism, Nick Leeson, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, purchasing power parity, quantitative trading / quantitative finance, random walk, regulatory arbitrage, Right to Buy, risk-adjusted returns, risk/return, Satyajit Das, shareholder value, short selling, South Sea Bubble, statistical model, technology bubble, the medium is the message, the new new thing, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond

Emerging markets proved popular; Latin America, Asia and Eastern Europe all had their moments. High returns available on local currency securities enticed investors to dabble in exotic currencies and high credit spreads on dollar denominated securities encouraged them to take on exotic credit risk. Derivatives facilitated investor access and allowed them to gain exactly the kind of exposure to the market they wanted. In 1995, Mexico experienced the Tequila crisis. In 1997, the Asian century was still- DAS_C02.QXP 8/7/06 4:22 PM Page 45 1 N Financial WMDs – derivatives demagoguery 45 born. In 1998, Russia defaulted. In 2001, Argentina completed its transition from first world to third world economy under the weight of debts that the country would never be able to service, let alone repay. Credit derivative products emerged. Credit default swaps and collateralized debt obligations (CDOs) allowed investors to take on credit risk.


pages: 385 words: 128,358

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market by Steven Drobny

Albert Einstein, asset allocation, Berlin Wall, Bonfire of the Vanities, Bretton Woods, business cycle, buy and hold, buy low sell high, capital controls, central bank independence, commoditize, commodity trading advisor, corporate governance, correlation coefficient, Credit Default Swap, diversification, diversified portfolio, family office, fixed income, glass ceiling, high batting average, implied volatility, index fund, inflation targeting, interest rate derivative, inventory management, John Meriwether, Long Term Capital Management, margin call, market bubble, Maui Hawaii, Mexican peso crisis / tequila crisis, moral hazard, Myron Scholes, new economy, Nick Leeson, oil shale / tar sands, oil shock, out of africa, paper trading, Paul Samuelson, Peter Thiel, price anchoring, purchasing power parity, reserve currency, risk tolerance, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, The Wisdom of Crowds, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond, zero-sum game

(See Figure 14.1.) Again, talking about the ability to trade size in directional opportunities, you could have put tens of billions of dollars to work on this trade and made a killing. Are the best opportunities in emerging markets always after panics and natural disasters? For sure. There’s no doubt about it, but we obviously never wish bad things on anyone. 297 THE EMERGING MARKET SPECIALIST 2000 Tequila Crisis Spread at 1900 Basis Point Spread to U.S. Treasuries 1750 1500 1250 1000 Spread Compressed to 400 Over and Trade Exited 750 500 FIGURE 14.1 7 l-9 Ju r-9 7 7 Ap 6 -9 Ja n 6 t-9 Oc l-9 Ju r-9 6 6 Ap 5 -9 Ja n 5 l-9 t-9 Oc 5 Ju r-9 Ap -9 5 4 Ja n 4 l-9 Oc Ju t-9 4 r-9 Ap Ja n -9 4 250 JP Morgan All Brady Index (EMBI Spread), 1994–1997 Source: JP Morgan.


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Hyman Minsky, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

., 308 resolution mechanisms, 256, 279 Richardson, Gordon, 176 risk, 84, 121–2, 123, 124, 126–9, 143, 254; implicit taxpayer subsidy for, 191–2, 207, 254–5; maturity and risk transformation, 104–15, 117–19, 250–1, 254–5; ‘optimising’ model, 129–31, 132, 134, 138, 309, 311; risk premium, 32–3, 115, 183; risk weights, 138–9, 258–9, 277 Robinson, Joan, 12, 292–3 Rodrik, Dani, 348 Rogoff, Kenneth, 44, 308 Rome, ancient, 59, 164, 216 Roosevelt, President Franklin, 91, 316 Royal Bank of Scotland (RBS), 37, 89, 118, 206, 243 Russia, 121, 159 saving, 101–2, 155, 308–17, 362–3; in emerging economies, 22–3, 27–8, 29, 30; ‘paradox of thrift’, 297, 326; ‘savings glut’, 28, 29, 30, 46, 319, 325; as source of future demand, 11, 46, 84–5, 185, 325–6, 356 Schacht, Hjalmar, 341–2, 343 Schäuble, Wolfgang, 211 Scholes, Myron, 120–1 Schumpeter, Joseph, 152 Schwartz, Anna, 192, 328 Scotland, 218, 243–7, 248 Second World War, 20, 21, 219, 242, 317, 342 secular stagnation theory, 44, 291–2, 355 Seneca, 123–4 11 September 2001 terrorist attacks, 124 ‘shadow’ banking system, 107, 112–14, 256, 262, 274 Shiller, Robert, 151 Silber, William, 206 Simons, Henry, 262 Sims, Christopher, 79 Slovakia, 216 Smith, Adam, 17–18, 54–5, 79–80, 163 Smith, Ed, 124 sovereign debt (government bonds), 32, 65, 92, 138, 182–4, 196–7, 203, 258, 259, 338–40; bond yields, 29, 183–4, 224, 227, 228, 231, 299, 336; in euro area, 162, 190, 224, 226–31, 258, 338, 339–40, 342–4; framework for restructuring, 346–7; need for export surplus before payment, 339–40, 341–3; WW1 reparations, 340–2, 343, 345–6 Soviet Union, 27, 68, 216 Spain, 47, 93, 159, 216, 221, 222, 227–8, 229, 257–8, 355, 363–4 special purpose vehicles, 113–14 stock markets, 102, 125–6, 133, 151–4, 194, 195, 200, 347 Stresemann, Gustav, 219 Summers, Larry, 44 Sweden, 159, 166, 173, 179, 216–17, 279, 335 Swift, Jonathan, ‘Thoughts on Various Subjects’ (1703), 250, 290 Switzerland, 33, 70, 100, 118, 184, 216, 335 Syed, Matthew, 124 Taylor, John, 168 technological change, 83–4, 127, 129, 153–4, 281, 291, 354, 355, 365 Tequila crisis (1994), 367 Thaler, Richard, 132 Thornton, Henry, 188 Tobin, James, 262 trade surpluses and deficits, 33, 34, 46, 319, 321–2, 329, 352, 356, 364; in emerging economies, 27–8, 30, 329; in EMU, 222, 232–3, 236, 363–4; and exchange rates, 22–3; and interest rates, 23, 30, 46, 319–20; likely re-emergence of, 48–9 trading, financial, 3, 24, 64, 99–100, 257; bonuses, 99, 101, 117, 144, 147; erosion of ethical standards, 100–1, 288; ‘front-running’, 153–4, 284 Transatlantic Trade and Investment Partnership (TTIP), 361 Trans-Pacific Partnership (TPP), 361 Trichet, Jean-Claude, 225 trust, 10, 81–3, 106; and monetary unions, 220, 232, 237; and money, 8, 55, 57, 66–71, 82–3, 155 Tsipras, Alexis, 230, 231 Tuckett, Professor David, 133–4 Turner, Adair, 324 Tversky, Amos, 132 unemployment, 38, 292, 293, 294, 297–9, 302, 326–7, 329, 330; in euro area, 45, 226, 228, 229–30, 232, 234, 345; and inflation targeting, 168, 169; and interest rates, 169, 298–300; ‘stagflation’ (1970s), 5, 302–3, 318 United Kingdom: Acts of Union (1707), 215; alternative strategies for pre-crisis period, 328–32; Banking Act (2009), 40; Banking and Joint Stock Companies Act (1879), 109; Banking Reform Act (2013), 40; ‘Big Bang’ (1986), 23; City of Glasgow Bank failure (1878), 108–9; commercial property market, 47, 118; Currency and Bank Notes Act (1914), 198; Labour government (1964-70), 20; as monetary union, 215; need for export sector support, 357, 364; return to gold standard (1920s), 76; Scottish independence referendum (2014), 218, 243–5, 248; trade deficits, 30, 321, 322, 329, 364; tradition of national branch banking, 116; see also Bank of England United Nations, 214–15 United States: 1914 financial crisis, 192–201, 206; Aldrich-Vreeland Act (1908), 196, 206; Bureau of War Risk Insurance (1914), 200; Constitution, 286; Dodd-Frank Reform (2010), 40, 260; dollar and gold link, 73, 195, 200–1; dollar as world’s reserve currency, 25, 28, 34; ‘double liability’ (1865-1934), 107–8; ‘free banking’ era, 60–2, 77, 161; Glass-Steagall Act (1933), 23, 98, 260; gold reserves, 74, 77; Gramm-Leach-Bliley Act (1999), 23, 98; history of money in, 57–8, 67, 68, 160–1, 187, 188, 212, 215; as monetary union, 212, 215, 234; need for export sector support, 357, 364; New York becomes world money centre, 194–5, 200–1; notes and coins in, 281; Office of the Comptroller of the Currency, 137, 206; trade deficits, 30, 34, 46, 49, 319, 321, 329, 364 Van Court’s Counterfeit Detector and Bank Note List, 61 Vietnam War, 5, 20, 73, 306 Viniar, David, 123 Volcker, Paul, 176, 288 Voltaire, 126 Wall Street Crash (1929), 347 Walpole, Horace, 369 Walras, Léon, 79 Washington, George, 286 Weatherstone, Sir Dennis, 136–7, 278 weights and measures, 212, 286, 287 Wheeler, Judge Thomas C., 162 wholesale funding, 97 Willetts, David, 83 Wilson, Brigadier-General Henry, 89 Wimbledon tennis championships, 142, 187–8 Wolf, Martin, 96, 262 World Bank, 21, 350 World Trade Organisation, 361 Yellen, Janet, 176, 287 Yugoslavia, break-up of, 216 Zimbabwe, 68, 69–70 ABOUT THE AUTHOR Mervyn King was Governor of the Bank of England from 2003 to 2013, and is currently Professor of Economics and Law at New York University and School Professor of Economics at the London School of Economics.


pages: 515 words: 142,354

The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz, Alex Hyde-White

bank run, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

With Jason Furman, who would later go on to be the chairman of President Obama’s Council of Economic Advisers, I wrote a paper trying to understand the factors contributing not only to the East Asia crisis but to crises more generally: “Economic Crises: Evidence and Insights from East Asia,” Brookings Papers on Economic Activity No. 2, September 1998, pp. 1–114 (presented at Brookings Panel on Economic Activity, Washington, DC, September 3, 1998). And also with three World Bank colleagues—Daniel Lederman, Ana María Menéndez, and Guillermo Perry—I wrote a couple of papers trying to understand the Mexican crisis of 1994–1995: “Mexican Investment after the Tequila Crisis: Basic Economics, ‘Confidence’ Effect or Market Imperfection?,” Journal of International Money and Finance 22, no. 1 (February 2003): 131–51; and “Mexico—Five Years After the Crisis,” in Annual Bank Conference on Development Economics 2000 (Washington, DC: World Bank, 2001), pp. 263–82. Finally, with two other World Bank colleagues—William R. Easterly and Roumeen Islam—I wrote two papers trying to understand the forces underlying economic volatility: “Shaken and Stirred: Explaining Growth Volatility,” in Annual Bank Conference on Development Economics 2000 (Washington, DC: World Bank, 2001), pp. 191–212; and “Shaken and Stirred: Volatility and Macroeconomic Paradigms for Rich and Poor Countries,” in Advances in Macroeconomic Theory, ed.


pages: 1,066 words: 273,703

Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze

Affordable Care Act / Obamacare, Apple's 1984 Super Bowl advert, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, Boris Johnson, break the buck, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, dark matter, deindustrialization, desegregation, Detroit bankruptcy, Dissolution of the Soviet Union, diversification, Doha Development Round, Donald Trump, Edward Glaeser, Edward Snowden, en.wikipedia.org, energy security, eurozone crisis, Fall of the Berlin Wall, family office, financial intermediation, fixed income, Flash crash, forward guidance, friendly fire, full employment, global reserve currency, global supply chain, global value chain, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, housing crisis, Hyman Minsky, illegal immigration, immigration reform, income inequality, interest rate derivative, interest rate swap, Kenneth Rogoff, large denomination, light touch regulation, Long Term Capital Management, margin call, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, mittelstand, money market fund, moral hazard, mortgage debt, mutually assured destruction, negative equity, new economy, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shale / tar sands, old-boy network, open economy, paradox of thrift, Peter Thiel, Ponzi scheme, predatory finance, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, reserve currency, risk tolerance, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, structural adjustment programs, The Great Moderation, Tim Cook: Apple, too big to fail, trade liberalization, upwardly mobile, Washington Consensus, We are the 99%, white flight, WikiLeaks, women in the workforce, Works Progress Administration, yield curve, éminence grise

Under the NAFTA free trade system, interconnected production systems, known as value chains, had been stretched from one end of North America to the other. As a result, Mexico’s dependence on the United States was overwhelming. In 2007, 80 percent of Mexico’s exports were sent to the United States. As the American crisis hit, Mexico’s GDP fell by almost 7 percent, a worse contraction even than during the homegrown financial crisis of 1995—the so-called Tequila Crisis.51 Mexico’s nonoil exports fell by 28 percent between May 2008 and May 2009. Automotive exports fell by 50 percent.52 In the northern industrial cities of Ciudad Juárez and Tijuana, the great maquiladora export processing centers, employment in manufacturing fell by more than 20 percent. Together with the surging violence of the drug wars, the recession led more than 100,000 desperate workers and their families to abandon Juárez.


Wealth and Poverty of Nations by David S. Landes

"Robert Solow", Admiral Zheng, affirmative action, agricultural Revolution, Atahualpa, Ayatollah Khomeini, Bartolomé de las Casas, British Empire, business cycle, Cape to Cairo, clean water, colonial rule, Columbian Exchange, computer age, David Ricardo: comparative advantage, deindustrialization, deskilling, European colonialism, Fellow of the Royal Society, financial intermediation, Francisco Pizarro, germ theory of disease, glass ceiling, illegal immigration, income inequality, Index librorum prohibitorum, interchangeable parts, invention of agriculture, invention of movable type, invisible hand, Isaac Newton, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Just-in-time delivery, Kenneth Arrow, land tenure, lateral thinking, mass immigration, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, Monroe Doctrine, Murano, Venice glass, new economy, New Urbanism, North Sea oil, out of africa, passive investing, Paul Erdős, Paul Samuelson, Philip Mirowski, rent-seeking, Right to Buy, Scramble for Africa, Simon Kuznets, South China Sea, spice trade, spinning jenny, The Wealth of Nations by Adam Smith, trade route, transaction costs, transatlantic slave trade, Vilfredo Pareto, zero-sum game

The combination o f mismanagement, profligacy, corruption, and open-ended borrowing—development without efficiency constraints— cannot long endure. Such structures are intrinsically brittie, because everyone is straining to the limit and everything is interconnected. Sooner or later, someone gets worried; the balance sheets do not bal­ ance; the lenders get cold feet; it becomes impossible to pay old debts with new. Panic! This happened in the Mexican peso crisis o f 1 9 9 4 - 9 5 . It couldn't have come at a worse (some would say, a better) time, just after the American administration managed to squeeze through the North American Free Trade Agreement (NAFTA) by calling in every politi­ cal chip and committing to a mountain of anti-economic favors. Now it had to find tens o f billions to reassure the market and give investors and monetary allies the time to pull their chestnuts out.